Keep it simple when planning, but not too simple

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Mark F. Winn

When your children inherit from you, will they lose it if or when they get sued, if or when they get divorced? Will the inheritance you leave to them be taxed in their estate when they pass? Will they squander it? Will the inheritance cause them to lose precious government benefits?

Let's assume, hypothetically, Luke and Sarah are happily married retirees who moved here from Ohio two years ago. They have two children whose names are Luke Jr. and Ruth.

Luke Jr. is a successful surgeon, and is married to Jane. They have two children whose names are Emily and Sue.

Ruth is an elementary school teacher who is married to Matthew. He is a struggling artist. They have one child whose name is Abraham, who is autistic.

Luke and Sarah have a simple will. An Ohio lawyer prepared it for them 20 years ago. It is "simple" because it basically says everything goes free of trust to the surviving spouse, and then to the children free of trust in equal shares.

Will this protect them and their family? You decide.

If Luke Jr. and Ruth inherit free of trust, then get sued or divorced, they can lose their inheritance. Since they will own the inheritance free of trust, there is nothing to protect the inherited funds from loss in a lawsuit, bankruptcy, or a divorce.

If Luke Jr. gets sued for medical malpractice, he could lose all his inheritance. If he does not get sued but successfully accumulates wealth, then what he inherits could be exposed to the federal estate tax when he passes.

If Ruth passes or predeceases, and her share goes to Abraham, this windfall could jeopardize Abraham's ability to qualify for government benefits.

All of these things can and often do happen to families who fail to act, who fail to plan ahead to neutralize these threats.

If Luke Jr. and Ruth each inherit their share pursuant to the terms of a trust for their benefit, then if it is drawn properly, the monies or assets can be available for their use and benefit during their life, but not subject to loss in divorce, not subject to loss in lawsuits, not subject to estate taxes in their estate. (Two exceptions are if they owe the IRS money or they owe child support).

Also, Luke and Sarah can ensure that the assets will stay in their family bloodline. Effectively, they can direct that when Luke Jr. and Ruth pass, that their share (or what is left of it) goes to their grandchildren.

They can provide that, if this happens, the share for Abraham will be held in a special needs trust which will preserve Abraham's ability to qualify for government benefits. If they think Ruth will waste the money by careless spending, they can have Luke Jr. serve as trustee, alone or with another, to administer the monies for the benefit of Ruth.

When planning your estate, all of these matters require attention. Professional guidance and counsel is imperative to success in this arena.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com

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