Many parents want to leave a legacy for their children but worry that when their child inherits from them, those assets will be at risk. Where do the risks come from?
First, when your child inherits outright, all those inherited assets become available targets for creditor claims and lawsuits they may be subject to at the time. If your child were ever to encounter financial or legal troubles, all the money left to them would be up for grabs.
Second, when your child inherits outright and they are married, there is a good chance their inheritance will become co-mingled with their spouse’s assets. While this is often not a problem, with a divorce rate at nearly 50% keeping an inheritance ‘in the family’ is a legitimate concern. Why create a scenario where your hard earned money is subject to a divorce settlement with your future ex-in-law?
Luckily, these scenarios can be avoided by being proactive with your estate plan and creating what we call a Children’s Inheritance Trust. Even though your assets are left in trust, you can structure the trust so that your child will still be able to draw on those assets to meet their needs without limitation. You can also use specific provisions in drafting an inheritance trust to ensure that inherited assets will not be subject to creditors, lawsuits, or divorce! If your children are minors, you can structure the trust so that the assets are used for their benefit by a trustee until they reach a certain age, and are then distributed to them or accessibly freely by them.
If you are interested in learning more about protecting your children’s inheritance, call the Heritage Law Center today.