Protecting Your Heirs Inheritance

Protecting Your Heirs Inheritance

Everyone wants to pass on some of their hard earned estate to their heirs. There are important things to consider when those assets are passed on. If the children are minors, or even young adults, they either cannot handle money, or may not have the experience and judgement to handle a sudden inheritance. A twenty year old may think a flashy new car is needed. Married children could be faced with divorce or health problems for themselves or their spouse. How can you protect your heirs who due to age, inexperience or family situations may not be able to hold onto their inheritance? 

The answer is to set up a trust that will hold, invest and distribute those assets to your heirs over time to protect them from their youth, inexperience, and the life changing events that can happen to them. An obvious situation is a family with young children. The estate can be passed to a trust that a relative can control and use for those children up through college and into early adulthood. That way an older and wiser relative can serve as your surrogate to care for those kids you love until they have the maturity to handle their own funds. A typical trust for this situation gives your trustee the authority to decide when and how much to distribute. That way the child’s needs, such as living expenses, college tuition and starting out in life, can be met. The trust could require certain percentages to be paid out at intervals so that the child can learn how to handle larger amounts of money, without one big mistake wiping out the inheritance. Normally there is an end date based on the child’s age when whatever is left is paid out.   

An example is a trust that parents created for their child who was well into his forties, but who would have wasted any money he received. The trustee for years paid a monthly amount to live on, bought a car when needed, and took care of other requests. One day the child asked for all the rest of the money because he said he was getting married. The trustee asked about the bride, and after learning that the child, then in his early sixties, had never met her, but only had contact over the internet, the request was denied. Sometimes you can’t make this stuff up. But that is why the parents set up the trust to protect the “kid” from himself. Another situation arises if a child has a difficult marriage and is likely to be divorced. The parents can set up a trust that gives total discretion to give or not give distributions to that child and the others. If that child has children, a “spray” trust can be established, which means that money does not have to be given to any one person, but can be “sprayed” among the named family members in the Trustee’s discretion. That way the assets will not factor into a divorce because the child with the marital problem has no legal right to the trust money.

Another situation that is more obvious, is parents with a special needs child. A properly drafted special needs trust can be used both for the special needs child and the other heirs. These trusts must satisfy the strict rules that come along with Medicaid or other government programs that a special needs child may be on. It is possible to establish a special needs trust that can have a portion for the special needs child, and the rest for the other children. It is designed to supplement, and not replace, the government benefits that the child needs.

A big advantage of such trusts is that they can be changed at any time as long as the maker is alive and  competent. Often nothing is put into the trust until the maker dies, but revocable trusts can hold funds during the makers lifetime, and can be changed or the funds removed by the maker at any time.

In summary, there are numerous ways to pass on your inheritance to your family, taking account of their age, health, or personal situations so that they will get the benefits that you wish for them. Most family situations are simple, and some are not, but solutions can be found so that money will not be wasted, but will benefit your heirs over a long period of time.

Attorneys Stephen O. and Halley C. Allaire are partners in the law firm of Allaire Elder Law.
Attorneys Stephen O. and Halley C. Allaire are members of the National Academy of Elder Law. Attorneys, Inc.
Allaire Elder Law is a highly respected, and highly rated law firm with offices in Bristol, CT.
We can be contacted by phone at (860) 259-1500 or by email.

If you have a question, send a written note to us and we may use your question in a future column.

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