by Tim Borchers, Esq., EPLS, AEP^®

Protect Your Child’s Inheritance From Forces Beyond Their Control

With increasing rates of life expectancy, multiple marriages and the ability to survive disabilities and injuries, the need to protect what we hand down to our heirs also increases. The best way to address these challenges is by implementing an estate plan that includes a lifelong trust for each child.

You may be wondering what you can do to protect your children’s inheritance from being lost due to forces that might be beyond their control. In jest, we say that you could spend it all — but no one has really been able to perfectly figure the timing out for that.

What we do recommend is establishing an Inheritance Trust™, which is intended to offer protection against what we have dubbed the “Killer Ds”: divorce, debt collection, disability, destructive spending, and death.

By law, child trustees can decide what is in their best interest, in addition to how and when to protect themselves against the 5Ds.

The range of responsibility for a child trustee is practically infinite. At one extreme, they can be put completely in charge of their own general welfare. However, it’s not the best way to protect their inherited assets, since “general welfare” is essentially deemed to be a blank check for anyone (e.g., a divorced spouse, creditor or the government) to fill in in their own favor.

On the other end of the spectrum, a trust might be rigidly controlled by a third-party trustee. Unfortunately, this can end up being downright miserable for your child, which is something you’d probably like to avoid. We generally draft an Inheritance TrustA trust created after the death of the Grantor for the benefit and protection of the inheritor (or created to receive lifetime gifts and inheritance from the Grantor). Read More with a liberal bias toward the child having control. This allows for adding or subtracting Trustees who can be chosen by the child – or not — as you see fit.

Without the use of a crystal ball to predict your child’s future — including their health, potential liabilities, spending habits and choice of spouse — there are few options for you to ensure the best outcome.

That’s why creating an Inheritance Trust makes the most sense.

Learn more about how an Inheritance TrustA trust created after the death of the Grantor for the benefit and protection of the inheritor (or created to receive lifetime gifts and inheritance from the Grantor). Read More works in our next blog post, Here’s Why It’s a Good Idea to Put Your Heirs in Charge of Their Own Trusts.