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How to Protect Your Estate from Unnecessary Vulnerability

You want to take steps to set up a Living Trust for your family so that if something were to happen to you and your spouse, the trust would enable your hard-earned finances to be available to provide for your children. Should you give the monies to your children (or if they’re minors, to their caretakers) as an outright lump sum, or is there a better way? Having served the Phoenix Valley for several generations, our team at Phelps LaClair can give you sound advice on setting up trusts that can help you avoid risk. We’re estate planning lawyers in Arizona, and we’re seasoned in the use of Protective Inheritance Trusts (aka, PITs). The following scenario is a good illustration of the value of a Protective Inheritance Trust.

Recently “Jane’s” mother passed away. Her father had died several years earlier, and now Jane is set to receive an inheritance from her parents’ estate. Thankfully, Jane’s parents had established a Living Trust that enabled Jane to avoid the costs and hassle of probate. Since the trust allowed for an outright distribution of the funds Jane was slated to receive, she and her husband decided to use some of the inheritance money for their kids’ college tuitions. The remainder of the lump sum was set aside for their retirement years.

So far, all is well. That is, until Jane’s husband is in a car accident. The other driver is seriously injured and decides later to sue him for damages to the tune of a million dollars.

Now, since the inheritance money has been pulled out of the trust to become part of their personal finances, Jane’s retirement money is vulnerable. If they lose the case and are required to pay, she and her husband could also lose a significant portion of the money they’d planned to reserve for retirement.

Avoid Asset Vulnerability With a Protective Inheritance Trust

Jane and her husband did what beneficiaries often do when given a lump sum through inheritance. They pulled the monies out of the trust. Many Living Trusts give full outright ownership of the inherited assets to the beneficiaries, and in doing so, the beneficiaries are needlessly exposed to the claims of ex-spouses, creditors, lawsuits, the government, and estate taxes. But there’s an easy answer that gives them the necessary protection, while still allowing them access to the inheritance you’ve provided: a Protective Inheritance Trust.

The Protective Inheritance Trust is connected to your Living Trust. It gives control of the PIT to the beneficiary, with full access to their inheritance, and flexibility in using the funds. But with a PIT in place, only the beneficiary can access the inheritance. It’s as if your beneficiaries are the only ones who hold the key to the vault of their inheritance. That means, in the event of a lawsuit (or divorce, or creditors, etc.) the funds are kept safe from dangerous vulnerabilities. Here’s a link that will explain a Protective Inheritance Trust in even more detail and give you a clearer picture of its value as part of your estate planning portfolio. If you’ve still got questions after reading the information on our website, please contact our estate planning lawyers for a free consultation. Someone on our Phelps LaClair team will be glad to sit down with you and answer any questions you may have.


Images used under creative commons license – commercial use (5/3/2018) David GALLARD (Flickr)

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