You worry about your children and grand-children, and want to do the best for them. You want to leave a legacy that will provide a better life for future generations. Unfortunately, the problems of the next generation can wipe out your lifetime of savings. You can protect your children, even after your death, by using a Protective Trust.
If you have several children, they are probably quite different. One may be financially secure and in a great marriage, one may be struggling financially, and another’s marriage may be rocky. You might have a child who is doing fine, but whose business is risky (perhaps she’s a doctor and might be sued.)
There are many names for protective trusts. They are traditionally called “Spendthrift” trusts, because they stop a wayward child from spending all of his inheritance at once. Some have trademark names such as a “Dynasty Trust” or “Trust Plus” or some such fanciful name. Whatever you call them, you might want a protective trust for your family.
With a Trust, the assets you leave behind are held by the Trustee (the person you put in charge), for the benefit of your children and grandchildren. There are limits placed on when and how much of the assets your heirs can get. The limits can be broad enough to allow your family to enjoy the assets, but tough enough to protect them.
The rich have always used trusts, especially for their spoiled children. But the less wealthy deserve the same protection. You can provide it for your children too. Even if your estate includes just a house and a little cash, you can protect it for your children and grandchildren.
There are many benefits to a protective Trust: Protection from Creditors – the assets to which your children have limited access cannot be taken by their creditors; Protection from Litigation –a winning plaintiff cannot take assets from the Trust; Divorce Protection – Trust assets will stay safe for your child or grandchildren – but won’t wind up in the hands of in-law; Protection from Mistakes – your child’s investing mistakes as well as foolhardy spending cannot harm those assets held within the trust restrictions, an independent Trustee and the use of a professional financial advisor can keep the trust assets safe and growing, even if your children know nothing about investing; Protection from Plain Bad Luck – if your child suffers a loss, such as flood damage or a medical disaster, the Trust funds will be available to create a cushion for when your children fall.
There are drawbacks, such as initial up-front costs. A trust is more expensive and complex than a Will. There are ongoing administrative costs, including Trustee and financial advisor fees, plus accounting and tax preparation costs. However, compared to losing all of your assets, these costs can be pretty small.
There are decisions to be made. Who will be Trustee of this Trust? It is best to have an independent Trustee, but this may increase the cost and may mean your children are less satisfied with the situation. One of your children can do the job, but additional restrictions have to be placed on the Child/Trustee in order to protect his assets. There may be more risk, and less protection, if a child is Trustee. You will have to decide just how and when assets should be distributed to your children. It’s pretty hard to predict the future. Your Trust terms should be flexible enough to account for unknown future issues, but restrictive enough to gain the protection you want.
You love your children and grandchildren, and you want to protect them, now and in the future. You can do so with the use of a protective Trust. See your Attorney if you want to discuss using a protective trust.