Proper estate planning does more than just provide a roadmap for the distribution of your estate assets after you are gone. It should also take into consideration relevant facts and circumstances about your intended beneficiaries as well as the inheritances you plan to leave them. A common consideration, for example, is the need to protect an inheritance from being lost or squandered after it is passed down. With that in mind, the estate planning attorneys at Wilcox Attorneys, PA explain how to keep an inheritance separate.
Why Would I Want to Keep an Inheritance Separate?
Whether you are passing down a multi-million-dollar inheritance or family heirlooms with little monetary value, the goal is for the beneficiary to appreciate and protect the inheritance you leave them. Sometimes, however, there is a legitimate concern that an inheritance will be lost after it is passed down. When that is the case, steps should be taken to keep the inheritance separate and protected before it is passed down.
While an inheritance can be lost for a variety of reasons, there are some common concerns and scenarios that lead to the loss of an inheritance. One of those concerns is through a beneficiary’s divorce. Although state law governs the division of assets in a divorce, marital assets are potentially subject to division in all states. Imagine passing down an inheritance to your adult child only to have his/her spouse end up with it in a divorce. Most states do not include an inheritance within the definition of “marital property”, but it can be all too easy to co-mingle assets and turn separate, inherited assets into marital assets.
Another common concern is the problematic beneficiary. You may have an adult child (or another beneficiary) who has an addiction problem, struggles with mental health issues, or simply does not handle money well. Understandably, you are worried that the inheritance you leave to this beneficiary will disappear with nothing to show for it in record time.
In both scenarios, the key to protecting the inheritance you pass down is to keep it legally separate and out of reach of the person or entity posing the threat. The good news is that a comprehensive estate plan can help do just that.
Estate Planning Tools and Strategies for Keeping an Inheritance Separate
If you have concerns about what will happen to the inheritance you pass down to one or more beneficiaries, the key to alleviating your concerns is careful estate planning. Fortunately, there are several estate planning tools and strategies that can be used to keep an inheritance separate and, therefore, protected. In most cases, a trust agreement can help.
Assets held in the right type of trust are legally considered to be owned by the trust. That keeps them from becoming co-mingled in marriage and from being subject to asset division in a divorce. Keeping a solid legal line between inherited, and therefore separate, assets and marital assets is the easiest and most secure way to prevent the loss of assets because of a beneficiary’s marriage and divorce.
That same trust can include a “spendthrift” provision that will prevent the loss of assets to the creditor of a beneficiary. Along with keeping an inheritance separate, a trust can contain provisions that provide for a staggered distribution of that inheritance or even dictate how the trust assets can be spent. These trust benefits can be particularly advantageous if the beneficiary has a history of making poor financial decisions for any reason.
Talk to your estate planning attorney about your concerns and ask about the best way to keep the inheritance you plan to pass down separate and protected.
Contact Estate Planning Attorneys
For additional information, please sign up for one of our FREE estate planning webinars. If you have additional questions or concerns about how to keep an inheritance separate, contact the experienced estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.