The benefits of leaving your estate assets to your children in trust
First, if you do not already have a Will, it is important that you make one. If you don’t, the state will make one for you — your estate will pass to your heirs under the Texas inheritance laws. Many people with children find it easy to decide who will inherit their assets. Those with modest estates may not think that leaving assets in trusts for their children is necessary. However, there are many benefits to doing so, and these benefits are geared toward protection.
If you have minor children, it is best to leave their inheritance in a trust not only so you can control how and when it is distributed, but also to avoid a costly guardianship of your child’s estate or having to deposit the inheritance into a court’s registry. If you have a disabled child, you should consider placing their inheritance into a special needs trust upon your death so that the assets won’t be counted against them for public benefits like Medicaid and Supplemental Security Income.
Beyond these important reasons, there are other ways trusts provide protection. Suppose you have a child who will likely spend an inheritance as soon as they have it. With a few exemptions, estate assets received outright will be subject to your child’s creditors. To avoid this, you can leave their share in a trust, as trust assets are protected from creditors if the trust includes the right language. The trust should be managed by someone else, or at the very least, include terms that spread the receipt of funds out over the child’s life.
Even for children who are not “spendthrifts,” you may want to consider creating a lifetime child’s trust, allowing the (adult) child to be the trustee. When the child dies, the money left in the trust can be directed to benefit their lineal descendants, if any, or to your other children. This allows you to better ensure your wishes are followed and to ensure that the assets you have built up over your lifetime pass to those in your family.
Consider this example: even though an inheritance received outright by your married child is considered to be his or her separate property, it is common for that property to be commingled with the couple’s funds throughout their marriage, and then presumed to be community property. If they divorce, all or part of the inheritance will be subject to division between the two of them, giving your daughter- or son-inlaw part of your estate you would have preferred be left for your grandchildren. But leaving your estate to a lifetime trust for your child keeps the assets separate and not subject to division upon divorce. If your children are also given the right to be the trustee of their own trust, they have all the benefits of outright ownership as well as the benefits mentioned in this article.
It is impossible to predict what will happen in your children’s lives. You hope for the best, but they could face financial difficulties, such as bankruptcy, or personal challenges related to marriage or their health. Meet with your attorney to determine whether trusts are a good option for you.
Visit www.wrightabshire.com. Wright Abshire associate attorney Theresa A. Clarke who contributed to the article. Wesley E. Wright and Molly Dear Abshire are attorneys with the firm Wright Abshire, Attorneys, P.C. Nothing in this publication should be considered as the rendering of legal advice to any person’s specific case but should be considered general information.