The following is an article from the March 2017 issue of "Get Your Ducks in a Row" Carolina Family Estate Planning's free newsletter. You can read the rest of the issue, as well as back issues of our newsletter online at www.carolinafep.com/library/newsletters/ or subscribe for free at www.carolinafep.com/newsletter.cfm
This article is Part 1 of a 2-part series. Part 2 of the series is at https://www.carolinafep.com/blog/powerful-protection-for-your-childs-inheritance-part-2.cfm.
All too often, when clients first approach our office or when we first meet with other professionals such as financial advisors or CPAs, we find that the focus is on anticipated expenses like avoiding probate costs and minimizing taxes. And while those are certainly important endeavors, we’ve found that many people overlook some of the biggest risks to their family—creditors, predators, and divorce. While we’ve touched upon these issues briefly in past newsletters, I thought it was worth taking a deeper dive into them here. With a comprehensive estate plan, parents and grandparents have a tremendous set of tools they can use to protect the assets that they leave to their family.
The Pitfalls of “Traditional” Estate Planning
A typical traditional estate plan might consist of estate planning documents such as a will, a trust, and beneficiary designations that leave clients’ assets to their surviving spouse, and then to their children, outright. The planning might include some basic provisions in case a child is relatively young, such as under 21, but once the child turns 21, any remaining funds are turned over to the child outright.
Potential Risks to Your Child’s Inheritance
What this type of “traditional” estate planning might neglect, however, are the potential risks and “speed bumps” that could come along in your child’s life. Here are a few examples:
- Personal Injury Claim: If your child causes a car accident, or someone is injured in their home, and as a result, your child gets sued, your child’s personal assets, including inherited assets, are at risk to the lawsuit judgment.
- Professional Liability: Depending on your child’s profession, your child may be at risk of being sued for malpractice. At-risk occupations include medical professionals, legal professionals, contractors, builders, architects, business owners, and similar. Without protection, your child’s personal assets, including inherited assets, could be lost in the lawsuit judgment.
- Disability: If your child is injured in an accident or has a catastrophic health event that leaves them disabled, they may be forced to spend nearly all their personal assets (yes, including inherited assets) before qualifying for government assistance for medical care.
- Divorce: Statistics indicate that almost one out of every two marriages ends in divorce. Therefore, your child’s inherited assets could be at risk to a future divorce settlement.
- In-Laws: If your child dies, typically their assets, including anything inherited from you, pass to the surviving spouse—your son-in-law or daughter-in-law. Do you trust—or like—your son-in-law or daughter-in-law enough to give them your child’s inheritance?
What can we do about these pitfalls? We’ll discuss it next month. Can’t wait that long? Come to one of our seminars or give us a call.
This series continues at https://www.carolinafep.com/blog/powerful-protection-for-your-childs-inheritance-part-2.cfm.