One of the most frequent topics in my estate planning seminars is the Bloodline Trust. A Bloodline Trust is a vehicle for leaving your children their inheritances with many benefits over a traditional estate plan or revocable living trust:
- Assets are protected from divorce. In a traditional estate plan, if you leave a child an inheritance and that child later divorces, the ex-spouse will likely receive a portion of the inherited assets. This is because in real life, inheritances are almost always mixed with “marital assets”, which leaves them open to equitable distribution in a divorce. In addition, any income earned on the assets that your child does retain may end up being paid to the ex-spouse in the form of alimony or child support. Use of a Bloodline Trust can eliminate all of these negative consequences.
- Assets are protected from financial calamity. In a traditional estate plan, if you leave a child an inheritance and the child later gets into financial trouble, those assets may be seized by creditors. With a Bloodline Trust, however, those assets can be protected.
Now that we’ve laid out the benefits, let’s talk about the mechanics of how these trusts work.
Upon your death (or the death of both you and your spouse, if married), your assets are split among your children in a manner that you decide in your Will. But instead of each child receiving his or her share outright, each child’s share is put into a separate trust for his or her benefit.
If you so desire, you can allow your child to be trustee of his or her own trust, meaning they don’t have to deal with any third party trustee. If you do this, your chold can have full control over investment decisions. Your child may also purchase real estate in the name of the trust, and use that real estate as he or she pleases. Your child may also withdraw assets from the trust for his or her “health, education, maintenance, and support”.
If a divorce or other financial trouble is on the horizon, at that point your child appoints a co-Trustee to serve with him or her. That’s when the protection “kicks in”.
These trusts have become increasingly common as parents seek to protect their children from both divorce and double taxation.
With a Bloodline Trust, engaging a qualified attorney is key. If you have any questions or would like to become a client, contact me.