Children are naturally inquisitive, and they tend to ask a lot of questions. When you are a youngster and you engage your curious nature, your parents invariably answer many of the questions by saying “it all depends.” This is the answer to many questions that people have about inheritance planning.
In many cases, what would happen under various different circumstances will depend upon the actions that you take when you are involved in your inheritance planning efforts. With this in mind, let’s look at the ability of creditors to take an inheritance that you may leave to your son or daughter.
Many people think that a last will is the simplest and most effective estate planning document to utilize. However, you have to remember that you are giving direct, lump sum inheritances to the people that you name in a will. The inheritors would assume personal ownership of the assets.
Let’s say that your son is not good with money. If creditors were to seek satisfaction from your son after he received his inheritance, his personal property could be in play, and this would include the inheritance.
Revocable living trusts are very popular. If you establish a living trust, you would be the grantor or settlor of the trust. You would act as the trustee, and you would have the right to revoke the trust entirely and take back the assets, and you could change the terms of the trust at any time.
Since you would have the power to extract assets from the trust at your will, while you are living, the assets in the trust would not be protected from your creditors. However, you would name a successor trustee to administer the trust after you are gone, and you would name a beneficiary to receive distributions from the trust after your passing.
Getting back to our example, let’s say that the beneficiary is your son. If you include a spendthrift provision, your son’s creditors would not be able to attach the principal that is contained within the trust, because your son would have no ability to direct the actions of the trust. In addition to this, depending on the laws of the state in question, the creditors could only get their hands on a portion of any income that is distributed to the beneficiary.
In addition to revocable living trusts, there are also irrevocable trusts. You could choose to create an irrevocable spendthrift trust for the benefit of a loved one with money management deficiencies, and once again, the assets in the trust would be protected from the beneficiary’s creditors.
Make the Right Choices
As you can see, there are ways that you can protect family members who may be prone spendthrift tendencies. This is one concern that many people have, and a trust can provide a solution.
At the same time, this is not the only type of situation that can exist. You may have a rather complicated family situation. Divorces are very common in our culture, and many people have children from different marriages. Families blend, and this can create some estate planning challenges.
Whether your family is blended or not, people in your family are typically going to be in different stages of life, and individuals that you love may have complicated family situations in their own right.
All of this can be confusing when you are thinking about how you want to plan your estate. This is understandable, but there are solutions that can be implemented to address any type of situation.
If you sit down and discuss everything with a licensed estate planning lawyer, your attorney can gain an understanding of your objectives and explain your options to you. Ultimately, you can create an inheritance plan that you feel comfortable with going forward, and you can always go back and revise your plan if things within your life change once again.
Once you establish this relationship and your attorney understands you and your family, you can make arrangements with your attorney to assist with the estate administration process after you are gone.
We would like to invite you to get in touch with us to set the wheels in motion if you would like to put an estate plan place or revise your existing plan. Our firm has been assisting families in central New Jersey for years, and we tend to develop long-term relationships with our clients and their families.
If you would like to set up an appointment, give us a call at (908) 222-8803 or drop us a line through our contact page.