Okay, you’ve got a child who doesn’t understand marriage and is twice-divorced; a child who attracts lawsuits like teenage groupies to a rock star; or, a child who flirts with bankruptcy like a “hot” swimsuit model.
Do you just ignore the characteristics of these children for inheritance purposes? THINK ABOUT IT. Shouldn’t you give some thought as to the distribution of your hard-earned estate to such lineal descendants? Have you heard the words, “outright and free of Trust”? Do they sound familiar? They should since they are probably in the distribution provisions of your Living Trust. Take a look and then we’ll discuss what they mean. These terms, in the distribution provisions, mean exactly that.
On your death, the distribution to your child, or other beneficiary, will be without restriction- “outright and free of Trust.” Thus, the beneficiary will receive their share of the Trust estate no matter what is going on in their life.
What if your daughter-in-law is suing your son’s pants off in Divorce Court? What if your daughter is involved in the “Lawsuit from Hell” and could lose everything. What if creditors are seeking out a son who is hiding like a roach in a wall corner from Texas pointed-toe cowboy boots? These things go on in families which can cause the loss of inheritances intended for children.
So, what do you recommend Jack, you ask. I have just the solution for you. The question is, will you act to implement it in your Living Trust?
It is an Estate Planning asset protection technique I call a PIT (Protective Inheritance Trust) provision. How does it work? It provides a condition to your child’s inheritance. Their receiving a share of the Trust estate is conditional on them being free of legal proceedings at the time of distribution. If they are involved in legal proceedings or creditor claims, they do not meet the condition and their share of the Trust estate remains in Trust until those issues are settled. Once the proceedings or claims have concluded, their share of the estate previously held in Trust, is distributed. This properly worded condition in the Trust precludes a Court or other administrative official from ordering such share out of the Trust to benefit some unintended 3rd party.
To further the asset protection technique, the PIT would also require that the child have a Sole and Separate Property Trust created to receive his/her share of the inheritance. This will reinforce the fact that the inheritance is received as his/her sole and separate property and is in no way intended to be co-mingled with community property should your child be married.
There you have it- Estate Planning with a PIT. Like it? You should as it has saved millions in loss of inheritances to children due to divorce, lawsuits, bankruptcy and creditor claims. Now, get off the couch and take action. Protect the inheritance for your children in your Living Trust by implementing the PIT.