Inheritance – What Are the Options?

Inheritance

There are steps you can take to protect your assets so that upon your death your family will have clear access to as much of your estate as possible.

How you protect your children’s inheritance depends upon the kind of estate you have, and the resources you are able to utilise before your death to establish the appropriate instruments for the disbursement of your estate.

Many people are familiar with the most straightforward way to leave an inheritance for children, and that is usually referred to as an “outright distribution.” In this situation money and other property are directly given to children for their possession and for them to deposit into bank accounts and so on.

The problem with an outright distribution is that those bequests are vulnerable to creditors, bankruptcies and other types of legal claims. As well, if your children deposit the money you have bequeathed to them in a bank account that is shared with a spouse, that sum can be considered marital assets in the event of a divorce-related property settlement.

Another consideration to keep in mind is the effect of probate on the inheritance you leave your children. If at the time of your death your children are minors, your bequest to them could be held in a probate court-directed-conservatorship until your children reach 18.

Upon reaching 18, your children would gain full access to that money and all other property. What concerns many parents looking ahead at this scenario is that depending on the sum of money to be managed, some children may not have the maturity to handle the money responsibly.

Given these reasons, there is an incentive for many to consider other options for leaving an inheritance for their children. One of those options is the establishment of a trust fund that provides for “staggered distributions.”

What this means is as the child reaches various ages – say 21, 30, 35 and 40 – he will receive a portion of his inheritance.
The only downside to using this particular instrument for distribution of your assets is that the inheritance is not protected against divorcing spouses, bankruptcies, lawsuits or other creditors.

A better option might be a lifetime trust for your children or other beneficiaries. With this method your assets are placed in trust for the lifetime of your children or other beneficiaries. If you have younger children, what you could do is appoint a “third-party trustee” who would take care of those trust assets until your children are of age and are capable of handling their own financial affairs.

After a certain time, your beneficiaries could be named a trustee of their own separate lifetime trust.

Leaving your children your assets in separate lifetime trusts allows them to have access to the money or other property that you have left them in order to tend to their living necessities such as education.

A great benefit of lifetime trusts is that they are protected against creditors and predatory claims like those that might arise during a divorce settlement.

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