Most parents typically provide in their estate planning documents an outright inheritance to their children following their deaths. Some parents may delay distribution until a child reaches a certain age.
Many adult children are mature enough to make sound financial decisions and manage wealth wisely. Outright ownership of inherited assets, however, often causes unnecessary risks regardless of a child’s maturity level. You cannot guarantee that your children’s lives will never be touched by a lawsuit, bankruptcy, or a divorce. When parents understand the above risks, many prefer their wealth to accumulate through the generations and to remain safe against the perils of life.
Parents must also grapple with the idea that by leaving wealth outright to a child, that wealth may create an estate tax liability upon the child’s death. Parents should recognize that it is possible to accumulate wealth rather than it being taxed at each generation.
One possible solution is the creation of a multigenerational trust. This is a beneficiary controlled trust which gives your adult child control and enjoyment of the assets, but not ownership of the assets. Therefore, if a child is sued, has creditors, or is faced with an angry ex-spouse, the assets of the multigenerational trust are not at risk. As divorce rates and lawsuit statistics increase, many parents choose to create, protect, and grow wealth for their children as well as future generations through multigenerational trusts.
For more information, please contact the Law Office of Jane M. McNamara at 661-287-3260.