Protecting Your Family - Protecting Your Legacy


For years the most popular method of leaving assets to beneficiaries was to leave them outright—all cash or assets in hand. This may not be good planning for you because it gives no protection to your beneficiaries, such as your children. Why should you leave open the door to predators (divorcing spouse) or creditors taking money from your child that you spent a lifetime earning? Only you can close that door and lock it for protection-but this must be done as part of your estate plan.

Protecting Your Beneficiaries from Themselves

I doubt donors ever intended to give a gift they knew would be used unwisely. Unfortunately, when assets are left outright to beneficiaries, the money is often used up very quickly due to their infliction with “sudden wealth syndrome.”
Because your estate legacy could continue for generations, you want to make sure the lives of your beneficiaries are enhanced and enriched. You want the assets you leave to your children or grandchildren aren’t wasted or lost by them and not to be taken and used by someone else (such as an ex).

How Should Your Beneficiaries Use Their Funds?

In beneficiary designation planning you have the option to give explicit instructions on what you would like your beneficiaries to do with the assets you are leaving to them. Do you want them to give part of it away? Do you want them to use it for education, travel, or to help give them a head start so they can buy a house or start a business?
The instructions should make sense in relation to the values and foundations you have created while you are living. The Heritage Institute reports, “On average 9 out of 10 families have failed when it comes to keeping their family unified and their assets intact for more than two generations.” To try to prevent this from happening in your family, you can choose to leave assets in trust to your beneficiaries in several ways, including a common trust, convenience trust, or dynasty trust. A protective trust is a wonderful gift of love to your children or grandchildren. It gives them more freedom than they would have if the assets went to them outright because they have control without risk of loss to third parties.

What Are Some Advantages of a Protective Trust?

1. The assets can be protected from your child’s spouse in the event of a divorce;

2. The assets can be protected from your child’s creditors;

3. Your child may not have to pay any estate tax from their inheritance upon their death; and

4. Upon your child’s death the remaining assets can pass to your blood relatives (usually children or grandchildren) and will not be lost to someone outside of your family.
The protective trust does not come into existence until both you, and your spouse if you are married, pass away. Then your assets are re-titled into the name of your child’s legacy trust. Your child will be the primary beneficiary of his or her own trust, and if you choose, they can serve as trustee. An independent trustee can also come into the picture if your child chooses to do so, in the event of creditors or bankruptcy knocking on the door. You could also choose to have a bank trust department function as a co-trustee for management of the investments.
In addition, your adult child will have access to the trust income and principle for their health, education, maintenance, and support. Also, you have the opportunity to give some very specific guidelines on how the trust assets are to be used. For example, you may wish to give some guidance on how distributions are made for home and family uses, for career and business purposes, or for the personal enrichment of your beneficiary.
If you were to leave assets to your children outright, and not in a trust, your child will likely not have the ability to set up a trust for themselves that will provide the benefits discussed above, unless they happen to be in one of the few states that allows a person to establish a self-settled asset protection trust, and they are willing to cover the expense of establishing it.

Help Your Assets Survive for Future Generations

As you consider how you want to leave an inheritance to your children, it’s important to know that you are in the best position to provide some asset protection for your children – not them. Your children will appreciate the benefit you are providing for them, and you will put them on the right track of providing for themselves and their family.

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