There is a fact of life that we all must accept. We are living a very litigious society. According to recent reports, there is an estimated 15 million lawsuits that are filed in the United States every year, and unfortunately, the number is growing. Each one of us works our entire lives to build wealth and a nest egg that we can leave to our family, children, and loved ones. We all hate the thought of losing our life savings due to litigation, or worse, our children losing their inheritance due to litigation or divorce claims.
However, there are simple steps that you can take to ensure that you protect your children’s inheritance from divorce and litigation. A very common scenario that occurs far too often is a child gets married to a spouse that the family is not too fond of, the parents pass away leaving a portion of their assets to this adult child, the adult child moves these assets into his or her joint account with their spouse, a divorce occurs, and the adult child loses a substantial amount of their inheritance to the former spouse.
Another situation involves the adult child who is sued by a creditor or as a result of the child’s negligent actions and/or behavior. The adult child receives an inheritance, and then the creditor seizes that inheritance due to the inheritance being in that adult child’s own name.
These are very common concerns for many Tennessee families. How do I protect my children from creditors, predators, divorce, and themselves? For Tennessee families with these concerns, an Irrevocable Trust can be an appropriate solution to their worries regarding an adult child. An Irrevocable Trust in the name of the adult child and for the benefit of the adult child as part of the family’s comprehensive estate plan can shield the child’s assets from divorce and litigation under certain circumstances.
This type of estate plan may look like the following:
John and Jane have three children, James, Bill, and Mary. Bill and Mary are responsible and John and Jane have nothing to worry about with them. However, James has always gotten into trouble. James has been married twice, has problems with debt and credit cards, and has been sued once before due to a car accident. John and Jane decided to create a Revocable Living Trust so that the settlement of their estate would be simple for their children when they pass away. This trust was designed in such a way that when they pass away their estate would be divided equally among their three children. However, James’ share would be distributed to the James Trust, an irrevocable trust, where a Trust Company would operate as Trustee. James would only receive so much inheritance from the trust on a monthly and annual basis. In addition, James had no right to remove assets from the trust whenever he wanted to. John and Jane knew that if they set things up this way and James was sued again or got divorced again, the assets in the James Trust would not be subject to loss from litigation or divorce.
This type of comprehensive estate plan is not as difficult to set up as you might think. However, you should discuss this type of planning with a knowledgeable and experienced estate planning attorney to ensure that the plan properly addresses your issues, concerns, and goals. In addition, this type of planning is expensive. However, it is not as expensive as the possibility of your loved ones losing hundreds of thousands of dollars of their inheritance to litigation and divorce, or possibly, because you tried to set this type of plan up without the assistance of an attorney or with an attorney who was not knowledgeable in this area of the law.
If you have questions or concerns regarding the proper comprehensive estate plan to put in place for your family to ensure a smooth transition of your wealth to the next generation, then please contact our office for a complimentary visit so that we can discuss your estate planning needs and concerns in further detail.
We look forward to hearing from you!