Outright and Free of Trust!

In my opinion, these five words could be the most dangerous words you can have in your trust documents. And yet, again, 90% of all traditional death trusts I see have this language. Why? Because most people did not know they had a choice. The choice is this: you can leave a lifetime of hard work and savings in such a fashion that your children and grandchildren will be unprotected, or you can leave it to your family in such a way that it will be almost impossible for it to be taken away from your family for generations. Most people prefer the protected option once they know they have it.

But why do you need to protect your children? After all, if your children are adults you can’t do anything more for them, right? Besides, if they don’t know how to take of themselves by now, then there’s nothing you can do. Isn’t that what people say?

Unfortunately just because your children are adults doesn’t make them immune to things that can happen to them through no fault of their own—things like divorce, financial setbacks, bankruptcy, or just dying before their spouse so that their spouse can remarry and give away your estate.

You may have heard the expression “You can’t control things from the grave.” Well, I don’t know if that is true, but I do know you can protect your children and your grandchildren from beyond the grave, and it’s very simple to do—so simple, in fact, I am still puzzled every week why everyone doesn’t include these provisions in their estate plans.

The Gift Only You Can Give!

By-the-way, only you can give your children (and grandchildren) this incredible gift of a lifetime of worry-free asset protection. Because if you don’t do it in your trust, it is lost forever! Your children cannot get this level of asset protection on their own because once things are inherited “outright and free of trust”, the courts do not let them ever have this type of protection again.

What if I then told you that the cost and the effort involved in giving this incredible gift to you children was so miniscule that you wouldn’t even notice the difference? Well, that is exactly what I am going to tell you, and the incredible, once-in-a- lifetime gift that only you can give is called a Children’s Inheritance Trust.

You see, most people, when designing their estate plans, only worry about taking care of their kids until they reach a certain age. For example, if your children are under 18, you might say in your trust, “My trustee can hold my child’s share in trust for my child’s benefit until they are 25 and then my trustee shall give my child their inheritance outright and free of trust.” Maybe your attorney got really clever and your trust says, “My child can get a third of their inheritance at 25, half the remainder at 30, and the final distribution at 35.” The problem with this language is that once the distribution is made the assets are exposed to whatever evils may beset your child, such as predators, creditors, and lawsuits.

Is it possible that a 36-year-old child could get divorced? Or could a child get divorced and remarried, and end up with some step-children you didn’t even meet before you died?

The divorce rate for first marriages is 50 percent, and in case you believe that love is lovelier the second time around bear in mind that the divorce rate for remarriages is 60 percent (from the article, “Remarried with Children” by Mila Koumpilava, from The Forum from Fargo, North Dakota, September 12, 2006).

Separate Property can become Community Property!

While it is true inherited property starts out life as separate property, in California it is very easy for separate property to become community. If you don’t believe me consult with a divorce attorney.

By leaving the property in a trust your son or daughter can control as trustee, it is never legally your son’s or daughter’s to lose or convert to community. It belongs to the next generation, and your son or daughter is just in charge during their lifetime. Could they spend it all, or invest it any why they see fit? Of course they can, but the fact that the trust says it is going to your grandchildren when you son or daughter dies give it an incredible level of asset protection. And it doesn’t matter if your son of daughter even has grandchildren! The fact they could in the future is what gives it the protection.

Perfect Strangers!

But I left something out of the above scenario—something that is going to happen to your children regardless of whether they ever get divorced, sued, or have a creditor problem. That’s right. Even if you believe your children are never going to get divorced, sued, or have a creditor problem, there is one thing I am certain is going to happen to your children. I am certain because it happens to all of us. Eventually, we all die.

Let’s say you have a wonderful daughter-in-law. She is a sweetheart and everyone loves her. Your son and your daughter-in-law have a perfect marriage and you are sure that they will never divorce. You were so confident of this, in fact, that you ignored my advice about leaving your son’s inheritance to him in an inheritance trust. You decided to just leave him everything outright and free of trust.

After you and your spouse leave this world, your son receives his inheritance, and he and his family are very grateful. Your son wisely invests the money and saves it so that he can retire early and spend more time with his children. Unfortunately, your son doesn’t quite make it to retirement. Your son was a hard worker, and unfortunately he worked a little too hard. He died of a heart attack at just 50 years old.

Your son was such a hard worker, in fact, that he never took time off to take care of his own personal affairs, like getting an estate plan. Even though you had reminded him several times, he never could find the time. However, at least he put a beneficiary designation on the investment account where he kept his inheritance. Guess who his beneficiary was? That’s right: your sweet daughter-in-law. What a relief! Now there won’t be a probate, and you trust your daughter-in-law as much as your son, so there’s no problem, right?

Your daughter-in-law is a sweet woman. She’s attractive, too. In fact, she’s so sweet and attractive that she there are plenty of guys who are interested in her. Your daughter-in-law is lonely after your son dies, plus she never liked to take care of the finances or pay bills; that was your son’s area. Now that your son isn’t around she needs someone to do the stuff she doesn’t like dealing with—you know, that money stuff.

It isn’t long before your daughter-in-law gets married again (remember: You’re not here to help. You died before your son did.). Her new husband is a great guy, and he has two children of his own. In fact, they’re about the same age as your grandkids (13 and 16). Just getting ready for college.

Your daughter-in-law and her new husband are a perfect match. She takes care of the kids, and he takes care of the finances. In fact, he decides it would be a good idea to just put all their accounts in their joint names so that if anything ever happened to one of them the survivor would have immediate access to the funds to take care of the family. Your daughter-in-law grew up watching The Brady Bunch and she thought this was wonderful. Everybody was just one big happy family.

You know what comes next, don’t you? Well, any number of things could happen. For instance, your daughter-in-law and her new hubby could get a divorce, in which case half of what should have gone to your grandchildren is now going to your “step-grandchildren.” I know they aren’t really your step-grandchildren. I’m just being trying to make a point. The point is half of your life’s savings is going to complete strangers. A lot of hours on the freeway and at the office so you could pay for some stranger’s kids’ college. Not what you had in mind, is it?

The Children’s Inheritance TrustTM

I call this provision the Children’s Inheritance TrustTM because it protects your children (and future grandchildren) from anything that might happen to them. It is the best of both worlds. It doesn’t prevent your child from using the money anyway they like, but we have a built in bodyguard provision with our trust protector that supercharges the asset protection if it is needed and protects your children and grandchildren from predators, creditors and whatever may come their way. It doesn’t control from beyond the grave but it protects for generations to come.

A sad statistic is that in the United States inheritances are gone within 18 months of receiving them. Don’t let this happen to your family.

The Modern Asset Protection Trust (M.A.P.T) TM

At Youngman Ericsson Scott, LLP, we’ve developed the Modern Asset Protection Trust.TM This trust can have your Child’s Inheritance Trust built right into it so there is nothing your child or children need to do to protect themselves. It is automatic. But modern documents are only part of the solution. Keeping your plan up to date, and you and your family educated and trained is even more important. For example, what if your child doesn’t know they have this incredible asset protection built into their inheritance?

Just the F.A.C.T.S.TM

That is why we have developed the Family Awareness Comprehensive Training System (F.A.C.T.S.).TM Unlike many estate plans that are drafted and put in a file cabinet or safe, never to see the light of day until your family pulls them out to see they don’t work, we have developed a system to automatically keep you, and your family, current, trained and aware. We provide online education and training to you, your family and anyone else who needs to know about your plan. We show them what to do when, and we don’t nickel and dime you with hourly fees. For members of our F.A.C.T. System, we automatically keep your plan up-to-date, and
your family educated on what to do when. It is a radical new way of bringing the dusty old legal industry into the 21st century, and I am not aware of another program like it in the country.

I personally have gone through a divorce, but unfortunately I had no inheritance. It was gone due to modern enemy number one. But if you are fortunate enough to leave a legacy to your children leave it to them protected from divorce. Because I’m sure my mother and father would not have wanted my daughter’s inheritance gone to my ex-wife.

For those of you who have attended my workshops you know I speak of six (6) modern enemies of family wealth. This was enemy number three (3). Enemy number four (4) is a little known tax planning opportunity that can save your family literally millions of dollars in taxes!