A client is 78 years old, widowed and living alone. He has three daughters and seven grandchildren, with whom he shares a close relationship. Unfortunately, one of his daughters is divorced and has precarious finances. Another has been successfully treated for breast cancer, but he is still worried about her.
Before coming to see us, our client had a simple will dividing his estate equally among his three daughters. But he was worried about what would happen if any of his daughters got divorced or passed away.
He was aware that in divorce, in most instances the assets of both spouses are pooled and split down the middle, even if some of them were inherited from one spouse's parents. And unless one of his daughters created an estate plan saying differently, if one of them passed away, her inheritance would pass to her husband rather than to her children. That might be fine, since the husband will no doubt take care of his children. But her husband may ultimately remarry with his estate passing to his new spouse and family.
Finally, there's the daughter in financial straights who our client already helps out financially. Any inheritance she receives will be available to her creditors. In fact, under his current estate plan, that's true for all of his daughters should they be sued for any reason.
Fortunately, our client learned that there is a way to protect his daughters and grandchildren from all of these risks. He revised his estate plan to provide that his estate go into trust for each of his daughters rather than outright to them. These trusts are often called "family protection trusts."
The law permits a third party "to create a protected trust for someone else" in this case, our client's daughters, while it does not permit an individual to create a protected trust for his or her own benefit.
Our client's family protection trusts for his daughters will protect their inheritance in the event of divorce or if they are sued, and will make sure that anything left upon the death of any of his daughters will pass to his grandchildren. Anyone who has experienced a divorce in the family, issues with creditors, or the death of a family member at an early age will see the incredible benefit of a family protection trust.