Leaving assets to a loved one “in trust” as opposed to “free of trust” is critical if you want to protect the assets from being lost in a divorce or a lawsuit, and want to make sure they stay in your family bloodline.
Leaving assets in trust means that the loved one has inherited a beneficial interest. If this interest is protected by a spendthrift clause, is clearly defined, and the trust directs the remainder to stay in the family, then once the assets are inherited, they will be protected from loss in a divorce. Your in-law will not inherit your property.
Let’s say Mom has a son, Derrick, who is married to Evelyn. Derrick and Evelyn have a son named Frank.
Mom does not really like Evelyn that much. Mom wants to leave her assets to Derrick but she also wants to make sure that Evelyn will not get those assets. What should Mom do?
She should direct that, when she passes, her assets are to go into a trust for the benefit of Derrick. Mom can make Derrick the trustee of his own trust, and she can direct that when Derrick passes, what is left will go to Frank.
If Mom wants to make sure Evelyn has no influence or control over the trust funds, Mom can make it so Derrick and someone else (other than Evelyn) serve as co-trustees with the duty to act jointly.
If it is clear that Derrick gets all the income and principal for his needs, then Mom’s assets and legacy are protected, and Frank’s future interest is protected.
If Frank is to inherit because Derick passed, Mom needs to specify in the trust at what age Frank would have control. Usually, it is age 25 or 30. In the meantime, we would need to consider who would be trustee for Frank. It is usually the biological parent, but it can be Frank’s aunt or uncle, if there is one.
This kind of planning is crucial for those who want to make sure the assets they leaved loved ones are protected and will stay in the 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