Parents love their children and want their children to inherit. However, many parents are concerned about their children's spouses. Fifty percent of all marriages end in divorce. What happens if a parent dies, leaves everything to his daughter, who commingles the funds with her husband and subsequently his daughter is divorced by the son-in-law? Through equitable distribution, the son-in-law may wind up with half of the parent's estate. In many instances, the son- or daughter-in-law simply exercises considerable influence over the natural child with the result that the inheritance is dissipated foolishly.
One solution is to encourage children to sign prenuptial agreements, but many children are very reluctant to confront their prospective spouse with such a document. An alternative is to establish trusts so that the assets are not commingled and made subject to equitable distribution. An independent trustee should be selected and withdrawal rights given to the children can be limited.
One way to protect a child’s inheritance from an irresponsible spouse or ex-spouse is through establishment of a Bloodline Trust. A Bloodline Trust should always be considered when the son- or daughter-in-law:
- Is a spendthrift and/or poor money manager.
- Has difficulty holding a job.
- Is a gambler.
- Has an addictive illness such as alcoholism or drug addition.
- Is emotionally and/or physically abusive to child and/or grandchildren.
- Has children from a previous marriage.
- Is unfaithful.
- Is not close to and/or not on good terms with children from the child’s previous marriage.
Without a Bloodline Trust, a number of circumstances can put a child’s inheritance at risk.
- The inheritance can be squandered by the son- or daughter-in-law.
- If the inheritance is commingled with the assets of a son- or daughter-in-law during marriage, in a divorce it will be subject to equitable distribution.
- Grandchildren from a child’s first marriage could be disinherited by a son- or daughter-in-law from a second marriage.
- Grandchildren could effectively be disinherited if a son- or daughter-in-law receives part of the inheritance and squanders it through misuse or poor money management.
A Bloodline Trust is designed to keep money in the family, protecting the inheritance of the client’s children and their descendants: Bloodline Trusts offer a number of important benefits:
- Trust assets can be used only for blood descendants – the client’s children and grandchildren. Specifically, assets in the trust can be used only for the client’s children’s or grandchildren’s health, education, maintenance or support.
- Trust assets are never available to a son- or daughter-in-law, either during the marriage or in a divorce, through equitable distribution or alimony.
- Trust assets are protected from children’s creditors and those of sons- or daughters-in-law.
- The client’s child may be given control over the trust.
- The child, acting as trustee, can distribute principal to or for the benefit of himself or herself or to his or her descendants.
- The trust terminates at the child’s death and the remaining principal can be paid only to the child’s descendants.
- The trust is revocable during the client’s lifetime, but only by the client.
The client’s child can serve as initial trustee of the Bloodline Trust or share this responsibility with an independent co-trustee. At any time, the child can resign from the trustee role. He or she will be removed from the role automatically in the event of a divorce or lawsuit and reinstated only when the divorce is complete, the divorce action is terminated or the lawsuit is resolved.
An independent successor trustee can be appointed by will or trust or can be nominated by the child. That successor trustee may be another child in the family or a financial institution.
Written By Thomas D. Begley, Jr. for Beyond Counsel an Estate Planning Software Company
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