Estate Planning Lawyer
Part of focusing on good health also includes addressing issues that could cause stress in our lives. Many people worry about what will happen to their family if something should happen to them. This is where having an estate plan in place can help alleviate that worry. It can also help avoid situations where your wishes could be derailed. Especially with your adult children.
You work hard all your life and save for the future. By the time retirement comes around, you’ve built up quite a sizeable nest egg and are confident that when you pass, your adult children and their families will be well taken care of. One thing you may not have considered is what will happen to that inheritance should your adult child and their spouse divorce. Given the high divorce rate in the U.S., this could be a very real possibility even if the state of their marriage is currently a healthy and happy one. If they do divorce, how much of the inheritance you leave your child will their ex-spouse walk away with?
In most situations, when an adult child takes inherited funds and combines them with those of their spouse – such as purchasing a home – those funds now become part of the marital estate. This means the spouse would be entitled to a portion of those funds in a divorce. What percentage depends on the state they live in and whether the state follows an equitable distribution or community property doctrine in the division of assets in a divorce.
Poor Money Management
Another scenario that some parents worry about, especially if there is already history, is when an adult child has the tendency to make poor financial decisions and lacks money management skills. The parent may be concerned that once the adult child inherits the substantial amount of money that is being left to them, they will proceed to squander it away. Another possibility is that the adult child may have creditors that will put a lien or attachment on the funds.
Setting Up a Trust
One way to ensure that these situations do not happen with the money you leave to your children is to set up a trust that has specific stipulations on how the funds are to be dispersed. If you have concerns about the future of your adult child’s marriage, you can put their inheritance in a trust, where they will stay, and name a trustee to oversee the dispersion of those funds. This way, those assets will never become part of your child’s marital estate.
If you are worried that your adult child will be irresponsible with their inheritance, a trust with a named trustee and stipulations on what the funds can be spent on can provide strong protection against those concerns. This can be especially important if your adult child has a history of addiction.
If you are concerned about liens or other debt collection actions, you can also have what is referred to as a “spendthrift clause” put on the trust which prohibits creditors that the beneficiary owes money to from accessing or attaching the funds in the trust. This clause protects the funds in the trust not only from current creditors the adult child has but also from future creditors.
To learn more about utilizing trusts in your estate plan, contact an estate planning lawyer for legal assistance.