Q:  I want to leave my estate to my son and daughter, but I’m afraid my son is not financially responsible and will squander the money and even though my daughter is financially responsible, I’m concerned her husband may gain rights over her inheritance.  How can I protect this?

A: This is not an unusual concern.  You’ve worked hard to amass your estate and your reservations are legitimate.  Your estate plan can be crafted in such a way to still leave monies for your children, but also protect the inheritance from outside influences and creditors.

Let’s start with your son.  You can leave his half in a trust solely for his benefit.  The trustee you choose will have as much or as little authority as you direct to make funds payable to your son while the majority is left in interest bearing accounts to allow the inheritance to grow.  A typical scenario would be to provide your son with a payment every quarter and that payment is comprised of all the income, dividends and interest derived from the accounts held in his trust.  Furthermore, if your son needs additional monies for reasons relating to his health, education, maintenance, or support, then the trustee has the discretion to pull additional monies out for these reasons.  In this scenario, it is recommended that your son not be the trustee of his own trust. The trust can be drafted such that the trust assets will not be subject to your son’s creditors.

On to your daughter, while you have no concerns over her ability to prudently manage funds it is nevertheless important to note that Arizona is a community property state.  Inheritance is considered separate property and not subject to the claims or demands of a spouse.  Unless (or until) that inheritance is commingled with community assets.  If your daughter uses her inheritance to purchase a home, then titles the home into her name and her spouse’s name, her spouse could have claims to ½ the value of the home should they later divorce.  If your daughter takes her inheritance and deposits the funds into a joint account, again her spouse could have claims to the funds.  Therefore, much like your son’s inheritance, you may prefer to leave your daughter’s inheritance in her own trust.  You may want to have similar terms as your son’s trust, or you may want to make distributions entirely discretionary.  You may even feel comfortable enough allowing your daughter to serve as trustee of her own trust.  The bottom line is you will want enough protections in place to ensure that the balance of her inheritance does not make its way into a shared account with your daughter’s spouse. We can help design the terms.

Regardless of what you decide to do, you can always change your mind at a later date, provided you have capacity to do so.  Leaving an inheritance in trust is a common practice and often used in situations like yours, situations where a beneficiary has addiction issues, is too young to understand prudent investment, has creditors, and for many other reasons.

 

As life happens it is important to update your estate plan.  The attorneys at Bivens & Associates, PLLC are happy to help you. Call us today at 480-922-1010.