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Chapter 4: We’re not the Rockefellers

So you made it through Chapter 3, and perhaps that sense of accomplishment gave way to a realization that maybe a will is not enough.  You have concluded that you don’t want your family to have to endure the probate court process if you become incapacitated or pass away, and you want to control the time and manner in which your children will receive their inheritance.  You would therefore like to create a trust but “We’re not the Rockefellers”, I hear you say, so we just need something very simple.

Maybe, maybe not.  Welcome to the Family Wealth Planning Session.

For Married Couples

Me: “What would you like to happen to your joint assets after one spouse passes away?”

Client: “That’s easy.  Everything goes to the surviving spouse.  Next question.”

Me: “What if the survivor of you re-marries and then gets divorced?  Are you concerned that the inheritance that you want to leave to your children could be at risk?”

Client: “Yes, now that you mention it.”

There are ways to make sure that after one spouse passes away, the assets inherited by the survivor will be protected in the event that the survivor re-marries and gets divorced.  That protection would also extend to assets which may be at risk if the survivor is sued, experiences creditor issues or a bankruptcy. 

If the intention is that the surviving spouse should have the use of the assets during their lifetime, but you want to make sure that whatever is left will be passed down to your children, there are ways to build those protections into your trust planning.  This cannot be achieved using online software or using an attorney that will give you a cookie cutter trust agreement for $1,500.

For Those With Children

Client: “I trust my kids.  If something happens to us before they turn 18, they should just receive their inheritance outright at 18.”

Me: “With all the life insurance, they will each have $2 million transferred to their bank accounts on their 18th birthday.  Do you think that may impact their decision making around whether to go to college etc?”

Client: “Ok, 25.”

Me: “Would you want to give them the gift of asset protection?  ie protect your children’s inheritance in the event that your children go through a divorce, get sued, or experience creditor issues or a bankruptcy?”

Client: “Sounds interesting.  Tell me more.”

It is possible to leave an inheritance for your children that is protected in this way.  This would involve the design and creation of an irrevocable trust that would be built into your revocable trust agreement. 

The reason I refer to asset protection as a “gift” is because this is something you can give to someone else, but is much more difficult to create for yourself.  For a relatively modest fee, this can be incorporated into your estate planning.  If your children one day tried to give themselves the same kind of asset protection, they would need to spend in excess of $20,000 creating a trust in Nevada.  Even if they did that, there is legal uncertainty as to whether the trust they set up would give them the same kinds of protections that you, the parents, can give them by creating the trust now.

The takeaway here is not that everyone should do this.  Every family is different.  Everyone’s priorities, hopes, fears, are different.  The point is that comprehensive planning involves the consideration and exploration of how much protection you want to leave behind, and how much control of their inheritance you want those left behind to have.  Again, this cannot be achieved using online software or using an attorney that will give you a cookie cutter trust agreement for $1,500.

A Cautionary Tale

Consider this sad case, recently brought to my attention by a colleague. 

A man created a trust and bequeathed a house to his granddaughter.  Granddaughter later died and the house went to her husband.  Her husband re-married, and then died, at which point the house went to his new wife.  Granddaughter (who originally inherited the house) had had a daughter of her own.  That daughter now has no rights in the house.  Instead it is owned by someone that was not known to any of the family members at the time that the man created the trust leaving the house to his granddaughter. 

Bottom Line

Trust planning involves looking in depth not just at your assets, but also your family dynamics.  Comprehensive planning means considering various scenarios in light of your specific desires and objectives and designing a plan that achieves those objectives. There is no “one size fits all.”

About Daniel Weiner

Daniel Weiner is a US and UK licensed attorney, based in San Diego, who provides trust administration and estate planning services to families and individuals across California. Dan guides his clients through the often confusing maze of financial and legal decisions to create plans that ensure the well-being of their families and the accomplishment of cherished family goals.


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