As a parent, you are most likely excited to leave your children an inheritance, which drives and motivates you in your work life. However, without taking the appropriate precautions, the assets you leave behind may be at risk of being lost or misused due to common life events, including divorce, serious debt, illness, etc. In some cases, the inheritance you leave behind may cause more harm than good for your children.
In the event you have created a will or a revocable living trust, it provides some protection for your kid’s inheritance. However, the legal documents will guide you to distribute the assets at a specific age or stage, such as one-third at the age of 25, half the balance at the age of 30, and the rest at the age of 35. If you have done so, you may want to review your estate plan and check to see if this is how your legal tools are set up. You have not been told about another option when you created your estate plan, which can offer you more control, and protection for your assets.
Nonetheless, at Legacy Counsel, we offer parents the several options of creating your Lifetime Asset Protection Trust, that best accommodate to your wishes for you and your loved ones. These one-of-a-kind trusts protect your children’s inheritance from being lost or squandered.
However, that is not the only thing they do.
A Lifetime Protection Trust not only offers an airtight asset protection, but it also provides your kids the ability to use and control their inheritance. By doing so, it allows your heirs to learn about the valuable experience o managing and growing their inheritance.
Lifetime Asset Protection Trust is not only for the super-rich.
Opposed to what many may believe, a Lifetime Protection Trust is not exclusive to the super rich. As a matter of fact, for those leaving a modest inheritance, a Lifetime Protection Trust can educate your children the importance of learning to manage money, rather than blowing through it. Without that control, most people waste their money in a short period of time. As a result, according to studies, “on average, an inheritance is totally gone in a about five years due to dept and poor investment”, as well as “one third of people who receive an inheritance actually had a negative savings within just two years”.
What to do with an inheritance or major windfall. Betterment. (n.d.). Retrieved April 29, 2022, from https://www.betterment.com/resources/how-to-use-inheritance
O’Brien, E. (2015, September 3). One in three Americans who get an inheritance blow it. MarketWatch. Retrieved April 29, 2022, from https://www.marketwatch.com/story/one-in-three-americans-who-get-an-inheritance-blow-it-2015-09-03#:~:text=Indeed%2C%20studies%20indicate%20that%20many,two%20years%20of%20the%20event]
Considering the previous hypothetical situation, consider if it were a smaller inheritance. A smaller inheritance is more at risk of getting wiped out on the first transaction in the single unfortunate event like a medical emergency, lawsuit, or serious accident.
In order for you to better understand, here we will share a true story relating a tragic accident. While the following events are entirely true, the names of the individuals are subject to change for the safety of those involved.
The Flooded Penthouse
Tony, who was visiting a friend at New York City, was staying at the friend’s penthouse. On a nice evening, Tony decided to run himself a bath. Nonetheless, as the bath was running, a friend called Tony and invited him out, in which he did.
Around 2:00 A.M., Tony was arriving home, and encountered a pool of water on the floor. Tony had then realized he left the bath running after leaving the place, to hang out with his friends. This huge mistake resulted in more than $400,000 in damage in property, and the one below.
Although there was insurance to cover the damage, the insurance company sued Tony for what is known as “Subrogation”. This company sued Tony, in order to collect the $400,000, which they had paid for the repairs to the penthouse, and the apartment below.
Now the flood was due to his negligence in leaving the bath running, which is a costly mistake. For this reason, Tony was responsible for the damage. You might be wondering where the Lifetime Asset Protection Trust comes into play, and this is how. If Tony had had received an inheritance outright on his own name, he would have lost $400,000 to the big lawsuit he received from leaving the bath running.
On the other hand, if Tony had received the inheritance through a Lifetime Asset Protection Trust, Tony’s inheritance money would be protected from such a lawsuit. And any other threat imaginable.
Not Worth the Chance:
Regardless of how much financial wealth you have or do not have, in the event you are leaving inheritance to your children, you should do anything in your hands to protect and educate your children in money management. By doing so, your wealth, which is in plan to be inherited to your children, will have beneficial effects on their lives, and future generations.
Not All Trusts are the Same:
When estate planning, you might consider leaving an inheritance to your loved ones. As a lawyer, it is quite common to be recommended to place those assets in a Revocable Living Trust. Nonetheless, when placing those assets in a revocable living trust, most lawyers will have you distribute those assets at a specific age, such as one-third at the age of 25, half at the age of 30, and the remainder at the age of 35. Having this in mind, you should review your own trust to learn whether yours does it as well.
Giving outright ownership of the trust assets through a living revocable trust puts it all you have worked for at risk. While a trust does protect your family’s inheritance, once those assets are distributed, they can be lost to future creditors, lawsuits, catastrophic accidents or illnesses, divorce bankruptcy, or like in the case of Tony, a big lawsuit.
However, instead of risking the loss of inheritance in a short period of time, a Lifetime Asset Protection Trust, will protect those assets airtight. When you gift your inheritance to your children through a Lifetime Asset Protection Trust, the Trustee of the trust owns the assets, rather than your children. Therefore, in the event your children get divorced, file bankruptcy, have a medical emergency or any other danger, they cannot lose their inheritance because they were never the owners of it in the first place.
Taking this into consideration, a Lifetime Asset Protection Trust can be built into a revocable trust, and at the time of your death it becomes irrevocable. For this reason, it keeps safe your loved one’s inheritance for their lifetime.
Let me break it down a step further: A Trustee of your choice holds the assets in your trust for the benefit of your children upon your death. A Lifetime Asset Protection Trust is discretionary, in other words, the Trustee has the power to distribute those assets in their own discretion, rather than releasing them at a specific time. Those assets are protected not only from external threats, but also from poor judgment.
Benefits of a Lifetime Asset Protection Trust:
A Lifetime Asset Protection Trust allows you to write guidelines, providing information on how you would like those assets to be used for your beneficiaries. This guarantees the Trustee is aware of your values and beliefs when making distributions, rather than guessing how you would have liked it to be done. These guidelines can describe how you would have chosen to make those distributions, such as purchasing a home, or a wedding, offering up to 10 different scenarios. Additionally, the Lifetime Asset Protection Trust offers support for those who will use that inheritance. In other words, it is a great educational experience for your children to learn how to manage finances, such as investing, running a business, or charitable giving.
With a Lifetime Asset Protection Trust, you can allow your children to become Sole Trustee later in life; once the child has enough experience and is ready to take full control. As a Sole Trustee, your child would be able to replace themselves with an independent trustee, in order for a continued protection.
Is The Lifetime Asset Protection Trust Right for My Family and I?
Although this might all be a lot of information for you to determine whether a Lifetime Asset Protection Trust is right for your family, contact us today to learn more. If your children will spend majority of the inheritance on everyday use, them the Lifetime Asset Protection Trust might not be the best for you.
At Legacy Counsel, we will help you determine whether this Trust is appropriate for you, considering your family circumstances, as well as your assets, to give you the our best opinion. Don’t forget, it is not about how much you are leaving behind, rather than ensuring that what you do choose to inherit, it is used when it is best needed. Schedule your Legacy Session, with the link below, to learn more about a Lifetime Asset Protection Trust.
