Many of my new clients ask me to review their existing living trusts. Some are good, some are bad. Almost all of them do not protect the inheritance from lawsuits and divorce. Most estate planners - assuming they are skilled and experienced - can help you avoid probate and estate taxes. That's where the work usually ends. We believe that is incomplete planning.
Why not draft the living trust to protect your children's inheritance from lawsuits and divorces?
If you go through the time and expense to design and implement your living trust plan, why not do it right and protect the inheritance? Most trusts I review are written to distribute the inheritance to the children at a certain age or in a staggered distribution - such as at age 25, 28 and 30.
We like to ask our clients why would you design your living trust so your children are given an inheritance that at a certain age is unprotected from lawsuits and divorce claims? The better approach is to design the living trust so each child's inheritance remains in a separate protected trust that at a certain age or benchmark event (a certain income level, graduation from college or grad school, age or ?) the child can take over as his own trustee. The assets, however, will remain protected in that child's trust.
If you had the option of receiving an inheritance that was protected or unprotected, what would you choose? Why would you choose any less for your children?
If you have a large estate, obviously you would want to protect it for your children. If you have a small estate and young children, a hefty life insurance policy can ensure your children (and surviving spouse) will have the means to live the life you want for them. Why not protect that policy in a lifetime protected trust?
Estate Planning should no longer be just about probate and tax avoidance. It should also be about designing a plan to protect your hard earned assets from lawsuits and divorce claims.
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