By Steven J. Gibbs, Esq.
This week’s topic is about a common estate-planning blunder that may seem like common sense to many individuals and couples. Although putting the kids’ names on your assets may seem like a viable strategy, this approach has some very serious drawbacks which are discussed below.
I always pose a simple fateful question when this issue arises in estate planning consultations, which goes something like, “is your son/daughter more or less responsible than you?” This question elicits a few predictable responses which range (on one end of the spectrum) from a glowing report of how accomplished and bright little Johnny is, to (the other end of the spectrum) a shake of the head and a deep sigh…enough said.
The seriousness of placing assets in the kid’s names is due to the risks inherent in being young and the many life changes that can occur. Unfortunately, life changes generate risk that can jeopardize your hard earned assets. What kinds of life changes am I referring to? Well, the big risk factors include divorce, bankruptcy, IRS problems, problems with the law, injuries and illness. These life events are described below and are most likely to create chaos with your estate and livelihood in your retirement years.
1. Divorce
Divorce is at the top of my list because it can financially devastate the participants and generally splits the assets in half. Spouses may be deemed one of two “super creditors” along with the IRS discussed below. So if divorce happens, all the adult child’s assets are in jeopardy. If a well-meaning parent placed assets in the adult child’s name, it could very well be subject to the divorce and this cannot be undone.
2. Bankruptcy
Similar to divorce, a bankruptcy places all the adult child’s assets at risk only this time it is the bankruptcy trustee who wants to take a swipe at them instead of the spouse. The same situation applies in that the parent cannot simply take the assets back.
3. IRS
Adult children, especially business people, can face tax problems in their lifetime and when this happens the sweeping powers of the IRS spring into action and can result in tax liens on all assets.
4. Legal Problems
This could be anything; however, issues such as accidents due to DUIs are the worst and civil and criminal judgments could result in judgment liens for substantial amounts of money which would again jeopardize all assets in the adult child’s name.
5. Health Concerns and Injuries
Younger people may be subject to injuries due to an active lifestyle or may experience medical emergencies such as heart attacks and medical bills can pose substantial risk to the estate assets.
Why does the Revocable Trust solve this problem?
Simply put, the Revocable Trust allows the parents to retitle the assets in the name of the Trust rather than placing the adult child’s name on them. The adult child or children may still be beneficiaries of the Trust and yet there is zero risk that the assets will be exposes to any of the adult child’s creditors or super creditors for that matter. There are also asset protection advantages for your Trust beneficiaries so that the adult child can be protected by the Trust even after your death.
You may be asking whether all of this matters because the elderly parents would also have risks? This is a valid concern, especially where the parents may be facing the need to plan for long-term medical assistance and/or Medicaid planning. Still, the fact is that most of the risks mentioned above have been weeded out of the parents lives by the time the estate planning discussion ensued AND there are other ways to plan for long term medical care and protect the adult children by using Revocable and Irrevocable Trusts.
As always, I hope this is helpful and . . .
Until next time…
Steven J. Gibbs, Esq.
239.415.7495
www.yourcircleoftrust.com
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was recently admitted to the California bar. Keeping abreast of law changes in these three States, as well as the United States, assists him in all aspects of the types of law the firm practices.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”