Christine, David, and Justin inherited $400,000 each from their father after his death. Unfortunately, their father’s poor planning led to unexpected consequences. Their father made a simple plan which lacked extra protections. Under his plan, all assets will pass to his three children outright with NO protections.
Christine’s Story – Lost her inheritance in divorce
The youngest child, Christine, turned 18, and received all her inheritance. Christine also married at 18 and then promptly unintentionally comingled all her inheritance by placing into her only bank account – a joint marital bank account with her husband. Inheritance money is a separate asset, but if you put it into a joint account without carefully tracing it, you can unintentionally comingle separate assets with joint assets and change their character to joint assets.
Two years later, Christine and her husband decided to get a divorce as they were no longer happy. During the two years of marriage, Christine and her husband went through half of the inheritance as both were out of jobs. Further, in the divorce Christine’s husband fought for the rest of her inheritance money, the main asset they both had, because it had been comingled and was no longer traceable as a separate asset.
Following the divorce, Christine was left with nothing of her inheritance, is single, and is in a job she hates. Had Christine’s father set up a trust with protections, this all could have been avoided. A Lifetime Asset Protection Trust (LAPT) would have kept Christine’s inheritance separate for divorce and would have kept them classified as separate assets during the marriage.
David’s Story – Lost his inheritance to a lawsuit
The middle child, David, also received his full $400,000.00 inheritance upon reaching 18. David has a wild party to celebrate his 18th birthday, David chose to drive drunk from his party to go get late night Taco Bell. On his way to the Taco Bell, David runs a red light and hits another vehicle, the driver of that vehicle dies as a result of their injuries. David is sued for $500,000.00 for wrongful death. Because David’s father didn’t provide a Lifetime Asset Protection Trust (LAPT), David’s inheritance is exposed as an asset and he loses it. Had David’s father set up an LAPT, the inheritance would have been protected by the trust.
Justin’s Story – Inheritance was wasted on addiction
The third child, Justin, became addicted to drugs at 17. While struggling with addiction, he received his inheritance when he turned 18. Because his father failed to design a provision to stop his beneficiaries from inheriting if they are addicted to drugs or alcohol, and he failed to appoint an independent trustee to manage Justin’s assets until he was sober for one year, the inheritance was not protected. Justin spent his entire inheritance on his next high.
Lifetime Asset Protection Trust (LAPT)
Looking back, the father could have done things differently.
- Instead of passing on assets to his three sons OUTRIGHT, he could have set up a Lifetime Asset Protection Trust for his sons and appointed a trustee to manage the assets for them. In that way, his three sons can use the fund anytime for education, health, maintenance, and support. Most importantly, LAPT will protect inheritance from being exposed to future divorce (Christine’s story) and future lawsuits (David’s story). This would have incentivized, educated, and inspired his children to become more in their lives, rather than simply receiving a lump sum of money that they were not prepared to handle.
- Instead of passing on assets to his three children without any condition, he could have built a provision into this trust that stopped them from inheriting or using funds if they were addicted to drugs, alcohol or joined an illegal cult. This would have protected Justin from himself.
The story of Justin, David, and Christine teaches us an important lesson about how, without planning, your effort to help your loved ones can go wrong. It is essential to plan ahead and consider ALL potential consequences of passing on a significant amount of money to someone who may not be prepared to handle it or could possibly ruin their lives. By taking the time to plan ahead, we can avoid unintended consequences and provide a better future for our loved ones.