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It’s very common for parents to be concerned about how their children will use their inheritances and many worry about assets falling outside of the family – often as a result of subsequent divorce or separation of the child. For those who are concerned about this, a traditional gift in a will is likely to fall short of estate planning needs. Protecting your child’s inheritance from being split or otherwise divided between your child and their ex-spouse, or from being used in ways you would not approve of presents an estate planning challenge. In this blog, we’ll look at the ways a parent can ensure that their child’s inheritance is protected from from future separations or divorces and/or is used in ways that meet the parent’s approval.
The most straightforward and the easiest way to give an inheritance or gift in a will is to simply name a beneficiary as the rightful heir to the asset. After the will-writer passes away, the appointed beneficiary of an asset will be its sole owner, and have the discretion to do whatever they wish with it. For example, if the asset was a house, they could create joint tenancy ownership with their spouse, sell the home and use the proceeds to pay off debts of their spouse. The original owner of the home (the parent), has no assurance that the asset (or the value of the asset) will stay in the family. Because of this, an outright gift is not the best option for parents who are worried about the inheritance left to their child leaving the family or being used in ways the parent does not approve.
Often, parents trust that their child will keep the asset in the family – the problem is that the asset might leave the family even if the child doesn’t intend for it. As an example, if the child passes away shortly after their parents, the inheritance would likely be given to their spouse (or other beneficiary) as part of their own estate. The child didn’t do anything against their parents’ wishes, and the outcome was still undesirable from the parent’s perspective. For both of these reasons, giving an asset outright to a child is usually not a good idea if you wish to ensure that the asset stays in the family or if you wish to ensure that the asset is used as intended.
By creating a trust account, parents can have much more control over how their estate is distributed and the conditions under which it can be accessed. They can create specific terms for how and when the appointed beneficiary will receive the contents of the trust. For example, if a family cabin is held in a trust, it can be specified that the cabin is to be shared equally by the children of the parents, with specified intervals at which each child can access the property.
In a different trust account, such as for money (funds), the parent could create a purpose trust, where the funds are only to be used for a specific purpose. The parent could leave $10,000 to their child to be used for raising their own children. By using a trust account, parents can create any rules or conditions that they wish and the beneficiary must adhere to them in order to access the funds. The trustee for the account will ensure that these rules are followed while distributing the funds to the beneficiary. Having assets in a trust account will keep them in the family, assuming conditions have been made to ensure this.
Ultimately, parents are able to ensure their estate and inheritances are kept in their family by using a detailed and tailored estate plan. While many might trust their children to follow their wishes, sometimes it’s out of the beneficiary’s control and inheritances can end up being used in ways you would not wish for, or even imagine. It’s always best to be prepared for any unusual circumstance and trust accounts can be the best method available to do so. By using trust accounts in a will, conditions that ensure assets remain in the family and are used as intended can be created.
If you require assistance creating your estate plan, contact an experienced BC estate lawyer today. We will ensure your estate is handled exactly as you’re expecting, ensuring that your inheritance is kept in the family under all circumstances.