Blog Layout

How to Protect Your Children’s Inheritance

editor • Sep 28, 2020

Estate planning for the future inheritance of your children and grandchildren should include protective measures to keep assets from disappearing or being claimed by a creditor.  A simple way to achieve inheritance protection is through a trust. A trust can pass your wealth bypassing probate. This allows specific trust provisions to ensure the money left to a beneficiary is neither squandered or through ill-advised spending or divorce action of the beneficiary.

Divorce is one of the primary obstacles to contend with when trying to minimize issues of wealth transfer and preservation. High divorce rates, especially among aging Americans, can make an inherited trust vulnerable if the property becomes commingled with the marital estate. Single and married children, as well as grandchildren of inherited wealth, should always maintain inherited assets and property as a separate entity whether as a trust or direct individual inheritance. Before any marriage, a pre-nuptial agreement should be signed to protect previously inherited wealth and the potential of future inheritance.

Whether your child or grandchild inherits an existing trust or establishes their trust after a direct bequeath, the terms of the trust can limit the potential problem of future loss of inherited monies or assets due to the possibility of lawsuits and creditor claims. A properly drafted trust can protect assets from legal action in the event your child is sued. A trust also protects the trust maker and the beneficiaries from the public process of probate. Anyone can research probate court records and determine how much your estate was worth, what you owned and how you chose to divide it.

If you believe your adult child has limited aptitude to manage money properly and might squander your grandchildren’s inheritance, then draft a will or trust that earmarks a dollar amount or percentage of the estate for those grandchildren explicitly. As an example, the will or trust can also specify that these inherited assets be allocated solely for a grandchild’s college education or wedding.

Another financial vehicle with some overspending controls is a “ stretch IRA.” This inherited individual retirement account (IRA) has a required minimum distribution (RMD) that stretches over a more extended period based on the inheritor’s life expectancy. A monitored minimum distribution will allow the principal to continue growing. In the case a child or grandchild is too young to manage the RMDs it may be in their best interest to name an institutional trustee to direct distributions.

Whatever your intent is for your grandchildren, be sure to include a discussion with your child, expressing your resolve for your grandchildren to inherit and clearly stating them in your will. Also, speak honestly about your fears that your child may blow through their inheritance and discuss the value of limiting annual distributions to only investment income or a percentage of the trust’s value to preserve the aggregate of assets. In the event your child, who may have an addiction problem like gambling, drugs, or overspending, may require trustee oversight to temporarily end distribution of trust or IRA monies until they demonstrate wellness. At that time, the trustee may opt to restart money distributions.   

Ultimately it is best to find a trusted estate planning attorney that is well versed in the laws of your state to help you craft a comprehensive approach to the dispersion of your estate that will protect your intentions from the mal-intent of others. Whether you need a lifetime “dynasty” trust, individual trust or direct inheritance, institutional trustee, inheritable stretch IRA, or a combination of inheritance vehicles, is all dependent on your unique financial position and personal desires for your legacy’s distribution. There is great latitude when drafting the structure for the distribution of your estate, so look to creative inspiration to open up possibilities. Contact our office today and schedule an appointment to discuss how we can help you with your planning.

By David Faloni 09 Dec, 2021
Reduced brain function may be indicative of dementia and can result in poor financial decisions. If you are age 50 or older, easy access to your financial assets like stocks and bonds, checking and savings accounts, money market accounts, and other assets can lead to loss of these funds if an unauthorized person gains access… The post Dementia Can Put Financial Wellbeing at Risk appeared first on Faloni Law Group.
By David Faloni 02 Dec, 2021
Symptoms such as memory issues should never be dismissed.  There are many resources available through a simple internet search, and professional associations that provide education and guidance through a maze of questions you may have regarding how to approach someone you suspect may be experiencing memory loss, or how to ask for help if that… The post How Diet and Exercise Affect Alzheimer’s Disease appeared first on Faloni Law Group.
By David Faloni 26 Nov, 2021
Assisted living is changing for seniors with new advancements in medicine, technology, and socioeconomics. The rising cost of assisted living means that some families are looking for new alternatives, while those who consider traditional assisted living have new options to consider. Alternatives to assisted living include multigenerational housing and in-home care. As these options become… The post Assisted Living Communities of the Future appeared first on Faloni Law Group.
By David Faloni 18 Nov, 2021
I have to decide between my two children, who should be my power of attorney when I need help communicating with doctors and handling my financial matters. Can’t I just name them both? You can, but please don’t. You risk creating conflict or chaos if you name more than one child to serve simultaneously. Instead,… The post Considerations for Choosing Co-Agents appeared first on Faloni Law Group.
By David Faloni 11 Nov, 2021
When caring for an aging family member, a family caregiving meeting can be a great way to coordinate communications and activities. These meetings are beneficial for helping to keep all family members abreast of decisions that need to be made, changes in diagnosis or prognosis, and help to ensure that all family members feel that… The post The Benefits of Having a Family Caregiving Meeting appeared first on Faloni Law Group.
By David Faloni 04 Nov, 2021
You would hope your living will is properly prepared and your resuscitation instructions or DNR (do not resuscitate) are in order. While your wishes in a living will may be appropriately documented, that does not guarantee the instructions will be carried out as you stated. The frightening truth is that mistakes about your end-of-life instructions… The post The Importance of Clear End-of-Life Care Instructions appeared first on Faloni Law Group.
By David Faloni 28 Oct, 2021
When you embark on a second marriage, you should be aware of how this will affect you and your new spouses’ Medicaid benefits. Current costs for long-term care facilities can run between $70,000 – $150,000 annually. Studies show that 70% of Americans will need that kind of care, perhaps for three years or longer. If… The post The Effects of a Second Marriage on Medicaid appeared first on Faloni Law Group.
By editor 21 Oct, 2021
A healthy lifestyle can increase your longevity significantly. Your lifespan can be increased by as much as 14 years for a woman and 12.2 years for a man according to the American Heart Association’s journal Circulation study. The United States is one of the wealthiest countries in the world, but according to the World Health… The post Apply These Five Lifestyle Habits to Lengthen Your Life Span appeared first on Faloni Law Group.
By editor 14 Oct, 2021
In estate planning, it is common that parents divide the inheritance equally among the children. But sometimes, parents intentionally choose to not leave anything to a child, and the reasons for doing so may vary. One reason could be that a child who is more financially successful than the others and the parent doesn’t feel… The post The Potential Outcomes of Disinheriting a Child appeared first on Faloni Law Group.
By editor 07 Oct, 2021
Imagine this scenario, an unwed middle-aged lady, Sandy, being the sole caretaker for her 85-year-old mother. Sandy still worked full time and would help her mom in the evenings and weekends. Unfortunately, Sandy was in a serious car accident and would be out of work for at least 8 weeks. She now faced the challenge… The post Short-Term Disability Insurance and Its Many Benefits appeared first on Faloni Law Group.
More Posts
Share by: