Part Three: Inheritance Planning

One of the main drawbacks in will planning is that wills generally pay out at death.  It’s been that way for hundreds of years.  However, circumstances in today’s world have challenged that traditional mode of settling an estate.  Today, the divorce rate hovers around fifty percent.  Exposure to lawsuits and creditors is far greater now than it was fifty or a hundred years ago.  As a result, the inheritance may be lost to these risks.

A second issue is that once an inheritance is paid out to your son or daughter they may die prematurely leaving all to their spouse, your son-in-law or daughter-in-law, who may get re-married and share your hard earned life savings with a complete stranger.  In other words, traditional will planning does nothing to keep your assets in your family.

There is a better way.  Through the use of a relatively new technique, commonplace for the last twenty years or so, you may now protect the inheritance you leave from children’s divorces, lawsuits and creditors while also keeping your assets in the bloodline so that it goes to your grandchildren, or others you choose, instead of potentially to in-laws and strangers.

Enter the Inheritance Trust.  Here’s how it works.  Client comes in today and doesn’t leave the inheritance to son Bobby directly.  Instead, client sets up an Inheritance Trust in Bobby’s name called “The Bobby Trust” and names Bobby the “trustee” or person in charge of the trust.  The terms of the trust provide that Bobby may buy, sell, trade or spend the assets at he pleases, including spending the whole thing – so you’re not “ruling from the grave”.

These Inheritance Trusts offer significant benefits.  First, the assets in the trust are protected from Bobby’s divorces, lawsuits and creditors. The assets are not in his name or his social security number.

Secondly, the parent may provide in the trust for what happens to those trust assets when Bobby dies.  Generally, the trust will state that whatever Bobby did not spend goes to his children instead of to in-laws and, potentially, strangers.  The trust does not govern Bobby’s own assets – these pass according to Bobby’s own plan.  The trust only governs whatever assets you left to Bobby.

These Inheritance Trusts now allow you to “control” – there’s that word again – what happens to your assets after you’re gone.  Now, the inheritance you leave may be protected from your children’s divorces, lawsuits and creditors and then pass by blood instead of by marriage – and who wouldn’t want that.

Before we leave this topic I would like to address those who may feel this is unfair to their son-in-law or daughter-in-law.  In the event you wish to provide for them and still keep your assets in the bloodline you have the option to state in the Inheritance Trust something to the following effect “In the event Bobby is still married to his wife Mary at the time of his death, keep the inheritance moneys (or a percentage of them, such as one-half) in trust for Mary, giving her the income for life and, upon her death, pay out the trust funds to her children. This way, you may provide for the in-law if you wish to, while still guaranteeing the assets will ultimately go to your grandchildren.

Part Four: Asset Protection Planning