QUESTION: Did you work 30 to 40 years so that all you have been blessed with ends up with your daughter’s x-husband, your son’s creditors, Uncle Sam, or your child’s bankruptcy trustee? (That would kill you—even though you are already dead.)
GOAL: Most people want to be certain that their lifetime’s accumulations help their children and may ultimately end up with their grandchildren.
RULE: In my opinion, in many cases, parents should strongly consider not leaving their children an outright inheritance of money or property because of the major concerns listed below.
REASON: If you leave your children an outright inheritance of the money and property in your revocable living trust, the family money—that took you a lifetime of hard work and saving to acquire—may very will be lost in the problems your children face in their lives.
DANGERS: What kind of problems? I ceased long ago being surprised by the number of problems your children have or might have that pose a risk of loss to their inheritance:
- Nagging Spouse
- Big Spending Spouse
- Income Tax Trouble
- Creditor Problems
- Financial Immaturity
- Lost in the Stock Market
- Psychological Illness
- Contributions to a crazy cult
- Medical Bills, etc.
SOLUTION—PROTECTIVE TRUSTS FOR ADULT AND MINOR CHILDREN
You can incorporate protective provisions in your living trust to help shield the children’s inheritance from their problems. You can take measures to protect your money and property once it’s in the hands of your children—without unnecessarily limiting their use of those assets.
Your children’s inheritance from you is like a castle. They can live in it, sell it, and buy a new castle. They can pretty well do what they want in and with the castle. Your children’s problems are the storm troopers who want to burst in and take over the castle. The Protection Trust is like the moat surrounding the castle. The moat prevents the storm troopers from invading the castle. When your child dies, the castle is delivered—intact—to your grandchildren.
There are several types of living trust protective provisions—from minimum protection, which allows your child unfettered access and management—to compete control of your child’s inheritance, such as using a bank trust department with the standard of spending money only for “health, education and maintenance.”
The type of protective trust you should use depends on the kinds of problems your child has or you anticipate will have in the future that pose a risk of loss to the inheritance.