Clients often scrimp and save to leave their children an inheritance. But, estate planning attorneys know that children and other beneficiaries often squander the money which they receive. The hard-earned assets of the parents are quickly dissipated on disposable assets, like extravagant vacations, or worse, fueling addictions and other negative behavior.

There are many ways to leave assets to a beneficiary. Leaving the assets outright may be the one which leaps to a client’s mind, but it is usually not the best way to leave assets. Here are some options for leaving assets:

• Outright
  • Subject to beneficiary’s creditors
  • Subject to beneficiary’s mismanagement
  • Subject to estate tax in beneficiary’s estate
  • Easily comingled and subject to division upon divorce

• Divorce Protection or “Access” Trust
  • Subject to beneficiary’s creditors
  • Subject to beneficiary’s mismanagement
  • Subject to estate tax in beneficiary’s estate
  • Normally not subject to division upon divorce

• Lifetime “GST” Trust with ascertainable standard
  • Subject to beneficiary’s creditors who fit within distribution standard
  • May be protected from beneficiary’s mismanagement if different trustee
  • Normally not subject to estate tax at beneficiary’s death
  • Normally not subject to division upon divorce

• Lifetime Trust with completely discretionary standard, or “Sentry” trust
  • Third party trustee
  • Not subject to beneficiary’s creditors
  • Protected from beneficiary’s mismanagement
  • Normally not subject to estate tax at beneficiary’s death
  • Normally not subject to division upon divorce

Often, when a client walks into your office, they have decided how they want their assets distributed. But, when you explore the benefits of different distributions, they see the light and change their minds. You do not serve your client well by simply drafting a plan consistent with their first expressed wishes without exploring the options with them.

Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com

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Steve Hartnett

Director of Education, American Academy of Estate Planning Attorneys

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