With the size of estates having grown today to where middle class families are leaving substantial bequests to their children (depending, of course, on how many children they have), the trend is toward establishing trusts for the children to keep the inheritance in the bloodline. In the case of your children, there are a number of benefits to leaving assets to them in a trust. These are: (1) the assets will be protected from their spouse in the event of divorce (2) the assets may be protected from their creditors in the event of a lawsuit or other financial hardship, and (3) on your child's death, the unused assets will go to your blood relatives (usually grandchildren) instead of to in-laws or others.
We call this “multi-generational planning”. Whereas with a will your estate plan usually dies when you do, with an Inheritance Protection Trust (IPT) your wishes will go on for thirty, forty or even fifty or more years after you are gone, i.e., for two generations instead of just one.
These trusts provide that, during your children's lifetimes, they have complete access to the income and the principal of their Inheritance Protection Trusts – so that you're not giving them a “gift which strings attached” or “ruling from the grave”. But when your child dies, you would like the trust assets, which may have grown considerably, to go to your grandchildren. If the grandchildren are under age thirty-five, we recommend that the funds be held in trust for them until such age, with the trustee (usually one of your other children) using so much of the assets as may be needed for their health, education, maintenance and support. If one of your children dies without leaving children of their own, then the trust funds go to their surviving brothers and sisters.
Keep in mind that, without an Inheritance Protection Trust, if your son or daughter dies, the entire inheritance you have left may go to a son-in-law or daughter-in-law who may later get remarried and share your hard earned assets with a complete stranger. Nevertheless, some clients would not want to disinherit their son-in-law or daughter-in-law. In such cases, the Inheritance Protection Trust, or a portion of it, may be set up to continue for your in-law's lifetime, providing them with the “income only” so that if they get remarried or end up in a nursing home, the assets are still protected. On their death the remaining trust principal will then go to your grandchildren.