I recently had the opportunity to sit down with a husband and wife couple from Mt. Juliet, Tennessee. This couple discussed with me their three children and how proud they were of each one of them. Specifically, all three of them were in college and one was going to be going to medical school to become a doctor in the upcoming years. However, there was one aspect of their children’s education that caused them significant worry and concern.
You see, this couple had saved and invested their money over the years and were now in a situation where they had money set aside to pay for all three of their children’s education, including their oldest son’s medical school education. However, the concern this family had was if they should both pass away, how they could be certain that their children would use their inheritance for their college education.
I explained to this couple that if they both died without a will and estate plan in place, then their assets would pass in equal shares to their three children under Tennessee law. However, since all three of their children are over the age of 18, then they are legal adults in the eyes of the law here in Tennessee. Therefore, each child would receive their full share in a lump sum and there would be no restriction on how that child spends their share. In addition their inheritance would be subject to divorce claims, creditor claims, and would even be subject to seizure in a bankruptcy case.
However, I explained to this couple that there is a legal strategy that we could design and put in place so that if something did happen to them, their adult children would use their education for inheritance and would not blow through it in a few years, or worse, even have it subject to divorce and creditor claims. This strategy involved putting a revocable living trust in place and selecting a successor trustee that was not their adult children. In addition, we would put in place a form of delayed distribution.
I explained that we would design the trust in such a way so that the successor trustee would have explicit instructions on how to distribute each child’s share to them. For example, we could design the trust to say that each child shall receive only so much money each year solely for their pursuit of college, graduate, and professional education. In addition, we could also determine when each child would receive the remainder of their inheritance. For instance, each child’s share shall be completely distributed at age 40.
I discussed with this couple that this would create a situation where their children would not have the ability to blow through their inheritance should they inherit a large sum of money while they are young. In addition, it provides an added level of security that the child’s inheritance would not be subject to divorce and creditor claims. This husband and wife couple felt this was exactly the type of program they wanted to put in place to protect their children and provide for them should they both die while their children are young.
If you have questions about estate planning in Tennessee, establishing a revocable living trust or an irrevocable Medicaid trust, avoiding nursing home poverty and Medicaid planning, probate, or any other estate planning topics, then I encourage you to attend one of our free live educational events scheduled this month. At these events, you will hear a lot of real life stories about families that paid thousands of dollars in unnecessary expenses, families that were able to avoid unnecessary expenses, and families that were able to protect their assets from unnecessary nursing home costs and expenses.
I look forward to speaking with you at one of our upcoming live educational events!