Heir Today, Gone Tomorrow
By: Amos Goodall
The next 20 years will see the greatest wealth transfer in history, as property passes with the death of our most successful generation. This is particularly true in Pennsylvania which, according to a Census Bureau report, is second only to Florida in the percent of its population over age sixty five. Our society is also experiencing the greatest demands on property, so people are seeking ways to protect their assets.
Parents worry about their children’s lifestyles, their marriage stability, and their own long term care needs, especially since children of an elderly person are often approaching retirement themselves. Tax planning also seeks to preserve assets from being taxed a second time when children pass on property to grandchildren. Members of the younger generation are also focusing on this, sometimes called "upstream estate planning".
There are expensive, complex schemes, such as off-shore, dynasty, and asset protection trusts, but these are all costly techniques which have not yet been tested by time and may be unavailable in Pennsylvania. A century-old method is to use spendthrift trusts.
As children realize the potential problems with inheritances, they often suggest that their parents create a trust like this, sometimes called an "Inheritance Trust." This has an independent trustee while maximizing the child’s control. Not only is this a tax efficient, but it can protect from both creditors and divorce claims, since the beneficiary himself has no enforceable right against the trust. As Las Vegas attorney Richard Oshins, who trademarked the term "Inheritor’s Trust™", writes, "Even if we assume the family unit will not do anything to cause liability, we all know that there is a reprehensible, morally bankrupt, segment of our population."
These trusts name a sympathetic and trustworthy trustee (two of the most important hallmarks for a trustee anyway) to manage distributions, while allowing the beneficiary to manage investments. Assets are protected from unnecessary exposure to the beneficiary’s creditors, a divorcing spouse, or the government. After all, a parent who leaves property to a child prefers that the property be used for the child, not persons with claims against the child.
Children are now seeing this logic and suggesting to their parents that their inheritance be protected using such a trust. This allows protection from death taxes, creditors and divorce claimants. Moreover the trust can invest in a child’s growing business and bypass estate tax on the business’s growth.