Do you want to make sure your in-law does not inherit your property? If yes, then you should leave your assets to your children (when you are both gone) in a trust where the money will be protected.
Leaving assets to a loved one “in trust” can also make it so the funds are not subject to estate taxes, and that they will stay in your family bloodline as you may wish.
In other words, you can make your child a trust fund baby! And you should, if you want to protect the money from in-laws and taxes, and keep it in your family.
To illustrate, let’s assume Jack and Jill are recent retirees and they have escaped the hustle and bustle of the North and moved to beautiful Bluffton.
They have a daughter named Susie, who is married to Frank. Jack and Jill like Frank but they do not trust him. He is a bit of a spendthrift and tends to gamble.
Susie and Frank have one child, Emily. Jack and Jill want to make sure that Frank will never get to the assets they leave to Susie. They also want to ensure that if Susie gets divorced from Frank, that he will not get any of their money.
If the funds are left outright, they can become commingled and could be exposed to other lawsuits and federal estate taxes.
So, what should Jack and Jill do?
They should make sure that, when they pass, their assets go through a privately administered trust and the funds are directed to go into a trust for the benefit of Susie.
Susie can be the trustee and she can determine what she needs from the trust in terms of income and principal. She can be the sole legal owner as trustee and the sole initial beneficial owner. The successor beneficiary would be Emily.
We can say if Emily inherits when she is under age 30, her share is held in a trust for her education, health and maintenance and support with her Uncle Ralph (Jill’s brother) as the trustee.
If Jack and Jill think Susie would be vulnerable to Frank and his demands from her to get to the money in the trust, Jack and Jill could direct Ralph as a co-trustee and or place some limitations on the funds … so as to protect it from Frank’s manipulations.
Effectively, we could make to so Susie has a legitimate excuse so it is beyond her control as to those limitations – maybe distributions in excess of a certain amount require Ralph’s approval.
In addition, Jack and Jill should have papers so that each other and Susie can make health decisions, get medical records and make financial decisions. Without a general power of attorney, for instance, formal legal proceedings could be required which could cost thousands and take months.
It is better to avoid problems than to experience them. Good planning need not be complicated to be effective. It does need to be done, though, or else many problems can emerge.
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