Texas Trust

How to Protect an Inheritance from Your Children’s Divorces

I was working with a couple who wants to make sure that their children do not lose their inheritance if the children get divorced.

Neither of the two children are married, but both children have "significant others" and the couple anticipates marriage is coming up for each of their children. They fear that one of their children will continue to invest in their spouse's business.

We discussed the options that are available to the couple. We are setting up their estate legal program so that when the children inherit, they will inherit in a trust - we call this trust the Children's Inheritance Trust.

By having the couple leave their estate to their two children's Inheritance Trusts, they make it more likely that the inheritance will be kept separate from any community property that the child may have with their spouse. If a child subsequently gets a divorce, then the child will keep their trust because the trust will not have been commingled with the assets that the child acquired with their spouse.

Most families these days have divorce circumstances. If you want to set up an estate legal program so that your children's inheritance is protected from their past, present, and future divorces, give us a call to start a conversation about the easiest ways to protect what you've worked to build.


Grandparents Leave Their Estate to Trust for Grandchild

I've been working with a couple recently who has been raising their grandchild since the grandchild was born. Their son was not responsible and the mother of their grandchild has a drug habit. Fortunately, the grandparents have been able to "save" this grandchild from his parents.

The couple knows that if their land and their money is left to their children, it will be wasted. Their children are not responsible, have no jobs, and have no appreciation for saving.

So the parents made a mutual decision to leave their entire estate for the benefit of their grandchild that they have been raising. Their children will not be included at all. If the grandchild is still young when the couple dies, the grandchild's inheritance will be placed in a trust with the grandchild's aunt as the trustee until the grandchild reaches the age of 25.

There appear to be no Texas forced heirship issues which would otherwise require the couple to leave an inheritance to their children. The children are older than 23 years of age, and the children are not incapable - they are just lazy.

The couple feels like they have worked for 40 years to accumulate some savings and some property, and they don't want to see it wasted by their children. They made a smart decision in leaving it in trust for their grandchild. Now - just maybe - their estate can do some good for their grandchild and their future great grandchildren.



Life Insurance: Should it Be a Trust Asset?

Adam and Betty wanted to make their estate settlement simple for each other and for their two kids. Knowing that assets in their own individual names would have to go through a court proceeding called probate, they created a revocable living trust and transferred their stock, home, LLCs into their trust.  They wanted to avoid lawyers, judges and courtrooms. 

Adam and Betty had heard that life insurance policies, IRAs, 401-Ks and annuities automatically avoid probate by their very nature because they are paid to the account’s beneficiary.  So, they didn’t transfer their life insurance policies to the trust.  Adam passed away. The insurance company immediately tells Betty that the insurance company needs a court order from the probate court. What?

Because life insurance agents used to believe that there would be some estate tax savings, the insurance agents would write the insurance applications in a way that the husband would own the life insurance policy on the life of the wife, and the wife would own the policy on the life of the husband.

So, when Adam died, it was determined that Adam owned the policy on Betty's life. When Betty dies, the death benefit will be payable to Adam (or Adam's estate). In either case, Adam's probate is necessary to collect the death benefit when Betty dies. In addition, if the policy that Adam owns has cash value, Betty will not be able to access this cash value until the policy’s ownership gets transferred by the probate court proceeding.

Had they transferred their life insurance policies to their trust prior to Adam's death, probate would not have been necessary. After Adam died, Betty, as the sole trustee, would have been able to access the policy’s cash value or change the beneficiary. But since they assumed that life insurance avoided probate, they ended up being required to complete Adam's probate to correct the life insurance problem, even though all of their remaining assets avoided probate.

If you would like to review your life insurance policy ownership and determine your best options, contact us at 214.220.2130 for an appointment.