One of the primary questions we discuss with clients is how to distribute or allocate the assets of the estate to their children. Most of these issues involve elements of family wealth preservation. With family wealth preservation, many couples desire to have an estate plan that, as best as possible, keeps the money available for the children and then grandchildren, while preventing “outsiders” from taking the assets (inheritance) away. Remember, any money distributed outright, directly to a child (or another family member) could be reachable by an outsider.
Who are these outsiders and how can they take the family wealth away from your children and grandchildren? Outsiders can include a child’s spouse, a child’s former spouse, or a child’s creditor.
There are several ways the family wealth can be taken away from a child:
- A child gets divorced and loses half of his/her inheritance when the marital property is divided. In many cases, inherited wealth is not considered marital property for division in a divorce. But there are several ways in which the inherited wealth is transformed from protected separate property to dividable marital property. Also, while the inherited wealth might not be considered marital for division, sometimes the growth and appreciation of the wealth from the time it was inherited could be considered marital property for division. Many clients want their estate plan to protect the family wealth from a child’s divorce.
- A child dies after inheriting family wealth and has a will that passes everything the child has (like a normal will – including the inherited family wealth) to his/her spouse (your in-law). The in-law later remarries and then creates a will that passes everything the in-law has (which includes the family wealth) to the in-law’s new spouse, giving your grandchildren little to nothing. Many clients want their estate plan to keep the family wealth in the bloodline and not allow it to pass outside to in-laws and their future spouses.
- A child is already in a second marriage and the in-law has children from a prior marriage. The child dies after inheriting family wealth and has a will that passes everything the child has (like a normal will – including the inherited family wealth) to the in-law. Later, when the in-law dies, the in-law’s will passes everything the in-law has (which includes the inherited family wealth) to only his/her children from a prior marriage, giving the grandchildren little to nothing. Many clients want their estate plan to keep the family wealth in the bloodline and not allow it to pass outside to in-laws and then to their children from a prior marriage.
- A child has financial problems and loses the family wealth to his/her creditors. Many clients want their estate plan to protect the family wealth from a child’s creditors.
By using a trust with proper estate planning, the child’s inheritance can be set up in a way so that none of the above can happen and the family wealth stays in the family for several generations.
If you have any questions or comments about this topic, please do not hesitate to contact the estate planning lawyers at MHPS.
