Majority of parents think that if their children are responsible for their finances that they don’t need the protection that a trust could offer. However, there might be circumstances that are beyond your children’s control and putting their inheritance in a trust could be an excellent safeguard. The following are protections that a trust could offer.
Protection Against Creditors
Even if your child is responsible with his finances, consider this scenario: he gets into an auto accident, and the other party filed a claim against him, and the court finds him liable for the auto accident. When this happens, all his assets, which includes his inheritance could be in jeopardy. But if his inheritance were in a trust, no lawsuit would be able to touch it, says one of the top estate planning lawyers in Colorado.
Protection Against Divorce
Depending on the state where your child married and divorced, his ex-spouse might be legally entitled to half of his inheritance. However, putting his inheritance in a trust would protect it against divorce orders.
Protection Against Predators
If your child owns his inheritance, an unscrupulous significant other could persuade him to make distributions to this individual. And what if your child becomes incapacitated or slips mentally, he would become vulnerable to malicious individuals. With a trust, your child’s inheritance would be safeguarded against potential predators.
Protection Against Estate Tax
If you leave your assets in a trust for your child, the assets would be kept separate from the estate of your child. If your child became financially successful and amassed a personal estate subject to estate tax, you could set up the assets in your trust to avoid taxation, and these could be passed on to other heirs minus the 40% estate tax.
Protection Against Himself
While this might be a non-issue for responsible children, this is crucial if your child isn’t that good with handling money. A trust could provide for the health of your child and essential living necessities while preventing him from squandering away his inheritance. If your child is also an addict—drugs, alcohol, gambling, etc.—you wouldn’t want to leave his inheritance unprotected.
Put simply, even if you believe in your heart that your child is the most responsible person you know, it’s best that you look to the future and potential scenarios that could leave his inheritance in a precarious position. Having a well-drafter trust could help you do this.
Get help from an experienced estate planning lawyer to help you figure out how you could leave your assets to your children in a manner that would provide for their needs and accomplish your goal of protecting them.