The Third Prong Of Estate Planning: Beneficiary Protection

I previously talked about the first two prongs of estate planning — incapacity planning and wealth transfer.  In my experience, most clients focus on the “wealth transfer” part.  That is, how do I get my “stuff” to my loved ones after I die in the smoothest, most cost-effective way.  Many clients don’t know that their estate plan can provide excellent protection for their family members or loved ones receiving their assets.   Here are some beneficiary protection issues that you should consider when you are having your estate plan prepared.

Guardians (or “back-up parents”) 

Minors need parents, and if you die prior to the time your child turns 18, the law requires a “back-up parent” to be appointed.  This back-up parent is called a “guardian” – responsible for the care, nurturing, education and discipline of your child.  Your estate plan should name your desired guardian (and at least one alternate guardian), so that there is no confusion about who you want to raise your children when you’re gone.

 Spendthrift Trusts – Protection For Young, Financially Immature Beneficiaries

 Minors and young adults simply can’t handle an outright distribution of their inheritance.  I have seen many 18-year olds receive a lump-sum inheritance.  In most cases, the young adult lacks the ability to make good decisions regarding the investment and spending of their inheritance.  So, parents routinely establish trusts to protect minors and young adults “from themselves.”  Only after the parents believe their children will be financially mature will the trust be “lifted” and the children be given full access and control of the inheritance.

 Lifetime Inheritance Protection Trusts (all the benefits, plus asset protection)

 Lifetime Inheritance Protection Trusts can provide all of the benefits of a spendthrift trust, but they can also do much more.  Even when the “conditions” are met (e.g., age, maturity, accomplishments), the trust continues.  The purpose of this continuation is not to control the beneficiary – but to keep the inheritance free from “creditors and predators.”  These trusts can be designed to safeguard inheritances if the beneficiary has problems of any nature, including divorces, lawsuits, creditors and substance abuse.

 Young or old, everyone needs an estate plan – a General Durable Power of Attorney, a Health Care Power of Attorney (or Patient Advocate Designation), and a Will or Living Trust.  Those documents build the shelter that protects you during incapacity, transfer your wealth smoothly and efficiently, and protect your family members and loved ones from unexpected challenges after you are gone.

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One Comment on “The Third Prong Of Estate Planning: Beneficiary Protection”

  1. MLM Says:

    This is an excellent article – thoughtful and well written. I plan to forward the article to some of my friends.


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