FAQs — Protecting Children's Inheritance

How can I protect the inheritance I leave to my children from their spouses or from future creditors? What if they get divorced or get a judgment against them?

A Descendants' Trust in your Last Will & Testament or in a separate Living Trust established during your lifetime is an estate planning technique that can address these concerns. A Descendant's Trust allows you to leave all your assets to your direct descendants and not your in-laws (or, as the case may be, your "outlaws"). All assets left to your child in the Descendant's Trust can then be safeguarded in case of divorce. In New York State, inherited property is not subject to equitable distribution if it is kept separate from marital property. A Descendant's Trust ensures that your child won't commingle the inherited property with a spouse when he or she may later divorce.

Additionally, a Descendant's Trust can shelter your child from his or her creditors. With the creation of a Descendants Trust, these same protections can be given to your grandchildren and more remote beneficiaries, thereby protecting their inheritance from bad marriages, bad judgment, and creditors for many generations to come.

You can tailor a Descendant's Trust to your particular needs. For example, the Descendant's Trust can protect disabled beneficiaries with the inclusion of a supplemental needs provision or the trust can protect a beneficiary that has a substance abuse problem by including a support trust provision. In this way, if any beneficiary is disabled and receiving government benefits, those benefits can be protected and maintained by providing that trust assets are meant to supplement rather than supplant government benefits. If any beneficiary has a substance abuse problem, through a support trust, the Trustee can use the assets to pay for his or her needs without making cash distributions directly to the beneficiary.

A Descendants' Trust requires that you appoint a Trustee to manage the Trust for your heirs. The Trustee can have discretion to pay income and principal to your child and/or her descendants, although the trust typically directs that the needs of your child are paramount to the needs of her descendants. It is not unusual for the Child Beneficiary to be a Co-Trustee of this trust with money management powers, giving your child responsibility for managing his or her inheritance. However, the appointment of a Disinterested Trustee is beneficial because that person is given the powers of invasion, which allows creditor protection - both in the case of divorce and with other creditors. The Disinterested Trustee could also have the discretion to terminate the trust or trusts if circumstances deem that a trust is not necessary.

Leaving your assets to a Descendants' Trust rather than outright to your children ensures that your assets are left to your own bloodline. The Descendants' Trust is intended to last for generations. This provides you with the luxury of flexibility and protection from future contingencies such as divorce, disability, substance abuse or creditors.