Estate planning is crucial to ensure that your hard-earned assets are passed on to your loved ones according to your wishes. However, without proper planning, your child could lose their inheritance in several ways. This article explores five scenarios that could jeopardize your child's financial future and offers insights into how a knowledgeable estate and trust law firm can help you safeguard your family's legacy.
Financial Problems and Creditor Claims
If your child has outstanding debts or a judgment against them, their inheritance could be at risk. Creditors can attach an inheritance that is transferred outright to the debtor, potentially wiping out the entire legacy you intended for your child. By setting up a trust with the assistance of an experienced attorney, you can protect the inheritance from creditors and ensure your child benefits from your estate as you intended.
Inadequate Insurance Coverage
Accidents can happen to anyone, and if your child is underinsured for damages they cause in an auto accident or injuries sustained by others while a guest in their home, they could be held financially responsible. A significant judgment against your child could result in the loss of their inheritance. To safeguard your child's financial future, encourage them to maintain adequate insurance coverage and consider establishing a trust to protect their inheritance.
Commingle Inheritance with Marital Property
When your child receives their inheritance, they may choose to commingle the funds with their spouse, converting it to marital property. In the event of a subsequent divorce, they could lose half of the inheritance. An estate planning attorney can help you create a trust that will keep the inheritance separate from marital property, ensuring that your child retains control over their inherited assets even in the event of a divorce.
Risky Investments or Business Ventures
Sometimes, a windfall can lead to a lapse in judgment. Your child may be tempted to invest their inheritance in a high-risk business venture or an unlikely investment scheme. To prevent your child from squandering their inheritance, consider establishing a trust with a professional trustee who can help manage the assets and provide guidance on prudent investment strategies.
Falling Victim to Financial Scams
Financial scams are an unfortunate reality, and your child may be targeted by unscrupulous individuals seeking to exploit their newfound wealth. To protect your child from falling prey to such schemes, work with an estate planning attorney to establish a trust that includes provisions for oversight and guidance from a trusted advisor. This extra layer of protection can help ensure that your child's inheritance remains secure.
Unsophisticated or Nonexistent Planning Causing Unintended Consequences
Studies show that 7 out of 10 Americans don’t have an estate plan, and if your wealth passes by default through the Probate Process a number of unintended consequences can follow. For example, the inheritance of a minor under the age of 18 whose parent died without a will passes into a court-supervised process known as a Guardianship, and is then distributed outright to the child on their 18thbirthday. A disabled beneficiary who is eligible for needs-based government benefits can be kicked off the program until they’ve spent down their inheritance. And some beneficiaries, regardless of their age, may never develop the responsibility to properly manage an inheritance. Proper planning in advance or your disability or death can avoid these undesirable outcomes.
The scenarios outlined above highlight the importance of proactive estate planning to protect your child's inheritance. A knowledgeable estate and trust law firm in Maryland can help you navigate the complexities of estate planning, guiding you in creating a comprehensive plan that safeguards your child's future. By taking steps now to secure your child's inheritance, you can provide them with the financial stability and peace of mind they deserve.
