Texoma Living Well Magazine March/April 2018 | Page 15

Protecting Your
Children’s
Financial Security
By Craig Watson
M
ost people who have
worked hard all their
lives to accumulate as-
sets generally desire
those assets to be left
to their children in the most beneficial
way. However, for some adult children,
a large inheritance of assets could be
dangerous, both to the children and
for the assets. This article summarizes
some of the estate planning strategies
you can use to protect the assets from
the children themselves, their credi-
tors, their spouses, scam artists, and
any number of other threats.
We all know families in which adult
children encountered problems after
they left home. These problems could
include addiction to drugs and/or al-
cohol, fiscal irresponsibility, inability
to retain a job, or wages inadequate
for long-term saving and moving be-
yond a hand-to-mouth existence. Addi-
tionally, unexpected and catastrophic
health problems may arise. You prob-
ably know someone who experienced
financial stress due to divorce or over-
spending, and subsequently getting
behind on monthly credit card or car
loan payments. And there are some
adult children with no current finan-
cial problems, but through accident
or bad choices find themselves in re-
sultant crisis.
These are just a few examples of life’s
little hand grenades that can ruin the
financial future of your children. In
reality, every child, no matter how
wealthy, is vulnerable to some degree
of financial problems. Therefore, in the
best interest of children, it is wise for
parents to consider asset protection for
the assets their children will inherit.
Traditionally, most parents have a Last
Will and Testament bequeathing their
assets to their children. Once a child
inherits these assets, there is very little
that can be done to protect the assets
from existing or future creditors. The
child cannot defeat the interests of an
existing creditor by giving the assets
away, putting the assets in trust, or any
other strategy. In addition, the execu-
tor cannot keep the assets in the estate
in-definitely if the Will says the assets
are to go to the children.
In order to protect against these
problems, the parent writing the Will
can place very strong protection
around the assets they wish to leave
the child. In other words, by leaving
assets to a child in trust, the parent
can make sure their assets remain
protected from the child’s creditors.
The parent has a rare and fleeting
“once in a lifetime” opportunity to
set up a carefully drafted and irrevo-
cable spendthrift trust in the Will to
forever protect their assets.
A trust is basically a contract in which
you appoint a trustee to manage the
trust’s assets for the greatest benefit of
the trust’s beneficiary. The terms of the
trust can provide for how much and
how often income and/or principal is
distributed to the child and for what
purposes. For example, the trust can
be drafted to supplement the child’s
income with a specific or variable
amount of money every month, or on
an as-needed basis. The trust can pro-
vide distributions for health care, edu-
cation, support, or general welfare.
When the child dies, the trust terms
can dictate how the remaining assets
are to be distributed to the child’s chil-
dren, a charity, or another entity cho-
sen by you.
Consequently, assets left to your child
in trust are protected from your child’s
past, current, and future creditors. A
well-drafted trust can prevent the trust
assets from becoming community prop-
erty and thereby becoming vulnerable
to the trust beneficiary’s spouse in a
divorce. It is even possible to allow
the child to be trustee of their trust and
therefore have control over the assets
you leave him or her. On the other
hand, it may be in the best interest of
the child for you to appoint someone
else to serve as trustee to manage the
assets and distribute income or princi-
pal to the child as needed. In general
a trust can be established in your Will
for your child and customized to your
child’s particular situation so that the
trust provides the level of asset protec-
tion, income protection, asset manage-
ment, and financial assistance that is
in your child’s best interest.
Craig Watson’s legal practice is focused on Estate and Tax Planning, Probate, Guardianships,
Elder Law and Corporate Law. Formerly a CPA, he has over 25 years of experience as an attorney.
He can be reached by calling 903-813-8500 or at craigwatsonlaw.com.
TEXOMA AREA Living Well Magazine | MARCH/APRIL 2018
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