During the course of estate planning discussions, many people communicate to their estate planning attorneys that they simply want to leave their inheritance in such a manner that it stays in their bloodline. The fact that approximately 50% of all marriages in the United States end in divorce makes those same people weary of a son-in-law or daughter-in-law. This is understandable given that it is quite possible for a son-in-law or daughter-in-law to remarry after the death of the spouse and then to leave the inheritance to his or her future spouse and/or future children.
The best way to prevent this scenario is to create a living trust which upon the death of the parent splits assets into another trust for each child’s lifetime. Known as Lifetime Asset Protection Trusts these trusts can limit distributions made to current or future spouses and they can ensure that assets transfer specifically to bloodline heirs and rightful grandchildren. These trusts also have the benefit of protecting your child's inheritance not only in the matter of divorce but also from bankruptcy, lawsuits and some creditors.
These types of trusts only allow the assets to be used for the beneficiaries’ health, education maintenance and support (known as HEMS). Health and education expenses are self-explanatory and usually easy to determine. Maintenance and support may have broader standards but there is a considerable amount of case law dealing with what falls under these terms.
When creating these types of trusts you will need to select and appoint a trustee. This can be a family member or you can appoint a professional trustee such as a trust company or a law firm. The trustee will ensure that the money will be used only for the benefit of the beneficiary and not for his or her spouse. The downside of using a professional trustee is the expense. They charge a fee for the service and the amount varies.
It is best to communicate with adult children about the terms of the trust and your reasoning behind creating it. Help them to understand that it is being done for their protection and future legacy.
For assistance in creating a Lifetime Asset Protection Trust, please contact Stouffer Legal in the greater Baltimore area.