To Protect Your Children’s Inheritance, You Don’t Have to Control It | Estate Plan Pros
To Protect Your Children’s Inheritance, You Don’t Have to Control It

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An estate plan gives you lots of opportunities to define when and how your beneficiaries can use their inheritance.  Inheritance is a nice word for everything you’ve worked hard for all these years.  Maybe you want to specify that your children can only invest in tax free bonds, and can never use your money for a vacation ever, or maybe you don’t.  Either way, your estate plan can provide some pretty amazing legal protection for your beneficiaries without controlling their lives.

The “Old Way” of Trust Planning

Traditionally, trusts survived just long enough to avoid probate for Mom and Dad’s estate, and divide everything between the children.  At the end, the children now own everything directly, which sounds great.  Unfortunately, this exposes your hard earned money to your children’s creditors, lawsuits, and potentially, even divorcing spouses. 

The “New” Better Way

Instead of giving your children their inheritance outright, each beneficiary may instead receive their inheritance inside a special trust created by your own personal Living Trust.  This trust gives your child the benefits of ownership without the legal liability of ownership.  It’s like giving your children their inheritance inside an LLC without the expense and complication of the corporate overhead. 

How it Works

Let’s say Doctor Lenny inherits a home and some cash from his parents who had an “old” trust.  On his way to work the car in front of him stops suddenly causing Lenny to crash into the back end of a bright red Italian sports car.  Months later, and several attorneys later, Doctor Lenny hands over what is left of his assets to settle the lawsuit – his own assets and his inheritance, gone. 

If we rewind and give Doctor Lenny his inheritance in a “new” trust, his parent’s home and cash are now held in his own separate trust.  Same car crash, same lawsuit, and Doctor Lenny is handing over what is left of his assets – except the inheritance.  His parent’s house and cash are left untouched. 

Who it's For

If you would like your beneficiaries to think of their inheritance as capital to be wisely managed and invested, this type of trust is for you. 

Please note: any trust strategy alone does not guarantee “bulletproof” asset protection.  But it does offer dramatically increased protection over holding assets outright.  Before proceeding with any estate planning, you should consult with a qualified attorney.  

Tags:Asset Protection

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Erik Hartstrom

Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove.  Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.


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