Do Your Children Need Asset Protection?
By: Barry E. Haimo, Esq.
November 24, 2020
The shortest answer we can give you is that if you have children, then yes, they do need asset protection. Indeed, most people who have children hope to leave some form of inheritance to them. In many cases, it’s the driving force behind continuing to work well beyond a time you ever thought you would. Said differently, it could mean the difference between having a meaningful head start and not having one.
So why in the world wouldn’t you take necessary precautions to protect the hard-earned wealth you hope to pass along? Without them, as you probably already know, the phrase “easy come, easy go” is far more likely to apply to your assets than it would otherwise. Furthermore, when parents don’t safeguard family wealth, sometimes an inheritance winds up causing more harm than good in their children’s lives.
Now that you know your children need asset protection, learn a little more about what you can do to ensure they have it.
Creating a Family Trust for Your Children
The first suggestion most estate planning professionals will make regarding inheritance is to place money and assets in a trust. Essentially, you sign over all the assets and funds you want to eventually go to your children to a trust account.
Most parents set up their family trusts so that they retain full control of these assets until death or otherwise stipulated. This is a great way to shield assets from creditors, catastrophic events, and even certain people that come in and out of your children’s lives that may not have their best interests in mind like spouses and creditors. However, in Florida, this protection is limited to after death and in most cases not during life.
The most common distribution recommendation is to keep trust assets in trust and enable your beneficiaries to control portions upon reaching certain ages (for example, half of the balance at age 25, and the other half at age 50 for each child). We, however, think that in many cases this kind of age-based distribution is a mistake.
The problem is, your family assets then become 100-percent at-risk to the world — including the beneficiary — upon distribution. You need to evaluate whether this is really what you want to do with your legacy. For some, it is exactly what they wish. For others, it isn’t.
The Lifetime Asset Protection Trust (LAPT)
Some parents elect to fund a Lifetime Asset Protection Trust, or LAPT. When they do, they still decide to gift certain assets to their children (usually following big life events or at those predetermined ages), but the trust retains ownership of it, not the kids.
An Outline of Ownership
When the paperwork reflects ownership as belonging to the trust, if structured properly, the assets remain shielded from other (not-so-great) life events like divorce and bankruptcy. In other words, your children can’t lose those assets because they never owned them outright in the first place.
Greater Discretionary Power
Another advantage is a greater discretionary power for trustees. Your chosen trustee(s) may distribute assets as they see fit at their discretion — a primary reason your selection process should be done very carefully — instead of having to commit to a more rigid structuring. This allows the flexibility to consider unforeseen circumstances (whether good or bad). You can always build in a trust advisor or protector to oversee the trustee who has broad discretion as a system of checks and balances.
Some parents even incentivize their children to meet certain life goals — education, business, and so on. Others choose to utilize this estate planning tool as a teaching instrument for things like business, charitable giving, or investing by naming children as co-trustees with someone they believe would make a good mentor for any of these financial endeavors.
There are a variety of options for how to set up this kind of trust. Whether as a stand-alone or built within a revocable trust (that becomes irrevocable when you pass on), it’s an option that can protect your children’s assets for their lifetime.
To learn more about LAPT options, reach out to Haimo Law. Whatever your wishes for passing down your estate, a team of experienced planning professionals can help you pass on and protect your legacy for your children’s lifetime!
Barry E. Haimo, Esq.
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