When your child or children inherit from you, will they lose it if or when they get sued, if or when they get divorced? Will the inheritance you leave to them be taxed in their estate when they pass? Will they squander it? Will the inheritance cause them to lose precious government benefits?
Let’s assume Jason and Suzie are happily married retirees who moved here from Ohio two years ago. They have two grown children, Jerry and Jill. Jerry is a successful surgeon. He is married to Jane. They have two children whose names are Emily and Sue. Jill is an elementary school teacher who is married to Zach, a struggling artist. They have one child, Kevin; he is autistic.
Jason and Suzie have a simple will. An Ohio lawyer prepared it for them 20 years ago. It is “simple” because it basically says everything goes free of trust to the surviving spouse upon the death of the other, and of not, it goes to the children free of trust in equal shares. Is this going to be good enough to fully protect them and their family? You decide.
If Jerry and Jill inherit free of trust, then if they get sued or divorced, they can lose their inheritance. Since they will own the inheritance free of trust, there is nothing to protect the inherited funds from loss in a lawsuit, bankruptcy, or divorce.
If Jerry gets sued for medical malpractice, he could lose all his inheritance. If Jerry does not get sued but successfully accumulates wealth, then what he inherits could be exposed to the federal estate tax when he passes.
If Jill passes or predeceases, and her share goes to Kevin, this windfall could jeopardize Kevin’s ability to qualify for government benefits. All of these things can and often do happen to families who fail to act, who fail to plan ahead to neutralize these threats.
If Jerry and Jill each inherit their share pursuant to the terms of a trust for their benefit, then – if the trust is drawn properly – the monies or assets can be available for their use and benefit during their life, but not subject to loss in divorce, not subject to loss in lawsuits, not subject to estate taxes in their estate. (Exceptions: if they owe the IRS money or they owe child support).
Also, Jason and Suzie can ensure that the assets will stay in their family bloodline. Effectively, they can direct that when Jerry and Jill pass, that their share (or what is left of it) goes to their children. They can provide that if this happens, the share for Kevin will be held in a special needs trust which will preserve Kevin’s ability to qualify for government benefits.
If they think Jill will waste the money by careless spending, they can have Jerry serve as trustee, alone or with another, to administer the monies for the benefit of Jill.
When planning your estate, all of these matters require attention. Professional guidance and counsel is imperative to success in this arena. The moral of the story is that a little bit of planning can do wonders to keep your assets in your family.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com