How Do I Keep my Kid's Inheritance Safe Part 1

How Do I Keep my Kid's Inheritance Safe Part 1 (2)

 

Asset Protection Planning for your Beneficiaries Part 2

 

How Do I Love You?  Let Me Show the Ways

 

How many ways are there to distribute an inheritance?  Basically there are two ways: outright, and in Trust. 

 

An outright gift provides no protection, and no direction.  Now, if you have a beneficiary that is absolutely fantastic with handling money, and you have no concerns about creditors, predators, divorce, the possibility of losing means tested public benefits such as Medi-Cal or SSI, or concerns about the beneficiary’s own self-destructive tendencies, then outright is likely the best choice. 

 

The second method of distributing an inheritance is in Trust.  Here, by using a Trust-style distribution, is where we have many options from which to choose.  A Trust can be designed to provide a lot of protection, to very little protection and control. 

 

Something to keep in mind is that in creating your Trust during the estate planning process, you can provide better asset protection than any type of asset protection the beneficiary can design for themselves if they were to receive the inheritance outright, and for far less cost.

 

 

Degrees of Protection Various Trusts Provide

 

Starting from one side of the spectrum, a Trust can be created that provides no protection from creditors or predators.  These types of Trusts are usually called an Unlimited Demand Right Trust.  So why choose such a Trust?  Because it does provide some other benefits that a Settlor may find desirable.  For example, what if the beneficiary does no estate planning of their own?  Well, in California, the Probate court steps in and California gets to decide.  I don’t know about you, but I don’t want the Probate court making my decisions for me.  Another benefit is that every time the beneficiary does a distribution, they are likely thinking about the people that gave them the gift in the first place.  They may even treat the money with more respect if they think they are spending “mom’s money” instead of their own.  Moreover, as the Settlor, you can provide precatory guidelines for how you would like the property dealt with or spent.  Because the guidelines are precatory (wishes) they are not a means of enforceable control.  Another benefit to this type of Trust is that the Beneficiary can withdraw all of the property from the Trust if he or she so desires.  So if the Beneficiary has some emergency or urgent need, he or she has access to all of the funds.  However, if the Beneficiary leave the money wherever it sits, they would not commingle the money with a spouse like they might if given the distribution outright.  So this type of Trust does provide some divorce protection.  California is a Community Property state, and income is generally presumed to be community property (half is the property of the wife, and half is the husband’s).  Gifts from bequest, devise, and descent is the receiving spouse’s separate property.  However, if money is commingled, it can be difficult, expensive, and perhaps impossible to prove how much if any remains separate property should a divorce occur.  No fun to think about, but things happen.

 

At the other side of the spectrum is the Totally Discretionary Trust which provides just about the maximum amount of asset protection.  With a Trust of this kind, the income is distributed by an independent Trustee (a person other than the Beneficiary) totally at the Trustee’s discretion.  Because of this, and other aspects that are built into the Trust, Creditors cannot force the Trustee to make a payment to the Beneficiary because it is not an asset of his or hers.  The chance of undue influence on a weak Beneficiary is also reduced again because the Trustee cannot force a distribution, therefore predator protection is greatly increased. 

 

Keep in mind that there are possibilities in-between that can be used to customize the level of protection you wish to provide.  It is certainly not a choice of either an Unlimited Demand Right Trust, or a Totally Discretionary Trust. 

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

My most important job is to listen to your wishes then suggest solutions.  Call today and let’s start planning!

Thanks for reading!

 

Dan Powell

1-619-980-2297

 

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

 

Asset Protection Planning for your Beneficiaries Part 1

 

Why Does Someone Create an Estate Plan?

 

As discussed elsewhere on my website and in my Blog, I have mentioned why people create Estate Plans.  They do so for the benefits that Estate Planning provides.  There are many benefits to creating a Revocable Living Trust, but we can condense them to four reasons or categories.  These reasons are:

 

  • To control your Estate while you are alive.
  • To provide for yourself and the loved ones who depend on you.
  • To give the property you wish to give to those beneficiaries you select.
  • To minimize professional fees, court costs, taxes, and other costs.

It is the third reason that we will be focusing on in this Blog.  We will discuss methods of distributing your Estate and how you may protect the beneficiary’s inheritance from such things as creditors, divorce, and even from himself or herself.

 

 

We Want to Enhance Our Kids Lives

 

When we give a gift of our property to a beneficiary, usually our children, we want to enhance their life, and maintain harmony.  The same is true even if the beneficiary is not our child. 

 

The ultimate question that the Settlor (the person that creates the Trust) must answer is – do you want to, in some way, protect or control how your child receives his or her inheritance?  Allow me to guide you to the answer to that question.  First, consider what your child would receive if you were to die today.  Next, tell me what it is that you’d like them to do with that inheritance.  Is it that you would like them to pay bills, take a family vacation, or educate their children?  So if you were to give them the inheritance outright, what do you think they would actually do with the money?  Do you think they would be responsible, or do you think they may squander it in some way or buy an unnecessarily big car or big house?  Lastly, ask yourself how you feel about your answers.  Some people will want to protect their kid’s inheritance in some way, and others may not.  The fact is some people are always responsible with money, some are not, and some land in the middle. 

 

Another thing to consider is that an outright gift does not necessarily mean “I love you”.  A mentor and colleague of mine tells a story of how he received an inheritance from his mother.  He put the money in the bank and over time he thought how it would have been nice to have used the money in remembrance of his mother, instead of just commingling the money with his own. He was rather emotional in relaying the story and I could tell he wishes he or his mother had thought it through enough to put language in the Trust instrument indicating his mother’s wishes for such a use.  This man is an accomplished Estate Planning attorney, so it can happen to anybody.

 

There are methods and degrees with which to control or recommend how the gift of an inheritance is to be used.  To do so is not to say “I don’t trust you”, but it is a way of saying “I love you, and because I love you I am always going to try to protect you”. 

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

 

Please see Part 2 of this blog for the remainder of this discussion on Asset Protection.

 

My most important job is to listen to your wishes first, then suggest solutions.  Call me today and let’s start planning!

 

Thanks for reading!

Dan Powell

1-619-980-2297

 

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

 

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

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