10 Things To Know About Protecting Inheritance

Most parents would like to leave an inheritance to their children, grandchildren and further descendants.  However, a lot of things can go wrong.  Here are ten things that parents leaving money to their children should know about Bloodline Trusts.

1. Litigation.  Your child or grandchild can be sued by a third party and their inheritance would go to the plaintiff.  These lawsuits are often unexpected.  For example, a result of an automobile accident.
2. Divorce.  Fifty percent of all marriages end in divorce.  Many are surprises.  If you leave the inheritance outright to your child or grandchild, his or her spouse will probably walk away with half of it.  If you leave the inheritance to a trust, the trust can be designed to protect it.
3. Spendthrift.  If your child or grandchild is a spendthrift and monies are left outright to the child, it is likely that the money will be gone in a short period of time.  Many of our children and grandchildren are lovable but are poor money managers.
4. Solution.  A solution is to leave the inheritance to a trust commonly known as a Bloodline Trust. 
5. Purpose of the Trust.  The purpose of the trust is to keep the money in the bloodline.  The trust could be established for children, grandchildren and even their descendants.
6. Divorce.  The trust, not the individual, holds the assets and the trustee controls access to the trust.  For example, if a child or grandchild is divorced, the divorcing spouse would claim and receive money that is in the name of the child or grandchild.  However, if the money was held in a trust, the trustee would simply reply that it is not the beneficiary’s money, it is the trust’s money. 
7. Creditors.  The trustee controls distributions from the trust.  For example, if a claim is filed against a child or grandchild from a creditor, money that is in the name of the child or grandchild would be subject to the claim.  However,  if the money was held in a trust, again, the trustee would simply reply that it is not the beneficiary’s money, it is the trust’s money.
8. Squandering.  A child or grandchild cannot squander money he or she does not have.  By putting the money in the name of the trust, rather than the name of the child or grandchild, squandering is prohibited.
9. Trustee.  The trustee can be an individual or a professional trustee.  A professional trustee is always preferable.  If there are individual trustees, it is always better to have co-trustees and for the trust to provide that if an action is filed against the beneficiary by a creditor or for divorce, the beneficiary is automatically removed as trustee and the co-trustee assumes full responsibility.
10. Trust Protector.  A family member or friend could be appointed trust protector.  A trust protector has the right to remove and replace the trustee for any reason or no reason at all.  The trust protector could also be given the authority to amend or restate the trust.