Summary: Proper and complete estate planning can do many things. It can help you take control over the legacy you leave behind and it can help you do so in a way that helps your loved ones avoid the stress and pain of not knowing your wishes. Your plan can, in addition to providing clarity, also provide protection. Properly established trust provisions can allow you to erect an extra layer of protection for your children and other beloved beneficiaries to ensure that the distribution you intend to go to your loved one ends up in their hands, not the hands of someone who took them to court and obtained a money judgment.
From the time you take them home from
the hospital, you, as a parent, fuss, fret and sometimes obsess over protecting
and providing for your children. You worry if your baby is eating enough. You
labor over picking a new house that will be in a good enough school district to
meet your pre-teen’s academic needs. You stress over the choices your teen
makes in terms of friends… and dating partners. Even once your children become
adults and take on independent lives of their own, you, as a parent, don’t just
automatically stop worrying about them and stop wanting to protect and provide
for them.
One of the clearest ways that you can
protect, and provide for, your loved ones is by taking steps to protect the
financial legacy you desire to leave behind for their benefit after you die.
Using one or more trusts in your estate plan can be a very helpful way to do
that. You can insert provisions in your trust that act as safeguards for the
wealth you ultimately want your child to enjoy.
These provisions are often called by
names like “spendthrift trusts,” but the benefits that these trust devices can
provide to you and your family is actually much more broad-based than the name
implies. Judging solely by the name, you might think that these planning tools
are only useful for families where a beneficiary is extremely irresponsible or
otherwise bad at handling wealth. You might find yourself saying, “All of my
children are upstanding, responsible adults with stable lives and careers, and
strong moral/ethical foundations. Our family has no spendthrifts, so this
doesn’t apply to us.”
That’s not necessarily true because, as
noted, this tool helps more than just families with a spendthrift child, a
child with a gambling addiction or a gullible child who is notoriously poor
with money. One area where this protection is evidence is when it comes to
litigation. Without the proper protections in place, the distribution you’ve
planned for your child could be in jeopardy if he/she finds him/herself under a
court order stating that he/she owes an amount to another person.
There are two common ways this can
happen. One is divorce. Even your most upstanding, responsible child could, one
day, find him/herself being sued for divorce. A divorce judgment could dictate
that your child is obligated to pay his/her ex-spouse a sum of money. The
ex-spouse could potentially be entitled to pursue your child’s inheritance you
gave him/her and take it to fulfill this court-ordered obligation.
Another way this can happen is a
lawsuit. Maybe a guest or a service provider got hurt while on your child’s
property, or maybe your child was in an auto accident that the police
determined was legally your child’s fault. These scenarios could lead to
personal injury lawsuits where your child is the defendant. The case could then
possibly end up with a verdict in favor of the person suing your child and a
large money judgment in that person’s favor. If that happens, it may be
possible that the wealth you had intended for your child to enjoy could end up
in the possession of this other person in order to satisfy this legal judgment.
Your estate plan can help guard against
this. A properly drafted and executed spendthrift provision can potentially
block your child’s creditors, including civil plaintiffs or ex-spouses, from
going after the assets you’ve put into that trust for your child’s benefit.
With this barrier in place, you will have once against served as protector and
a provider for your child.
This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.
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