Very few people think giving a lump sum inheritance to an eighteen or twenty-one year old is a good idea.
And while many people may feel their total assets are somewhat insignificant, it is important to remember that, in the grand scheme of things, if both parents pass away at the same time (e.g., a car accident) there will likely be two or more life insurance policies, a couple vehicles, one or two retirement accounts and a home available to the children. When added together, those assets could easily result in a significant inheritance.
The current state of law can only delay a minor’s receipt of those assets until age twenty-one. However, effective April 6, 2017, the Ohio Transfers to Minors Act will change that and allow parents to delay the delivery of assets to their children until up to age twenty-five by expressly specifying that desire in their will. The default age at which children receive an inheritance will nevertheless remain twenty-one.
Parents wishing to delay delivery of assets to their children beyond age twenty-five can do so by setting up a trust. A common misconception is that trusts are only for the ultra-wealthy. A trust can provide numerous benefits beyond simply delaying the age at which children receive assets. Dynasty trusts are one of the latest estate planning tools available for helping parents protect their children and assets. Dynasty trusts allow parents to:
- delay their children’s discretion over use of the assets until any age the parents desire, while allowing someone the parents trust to control the funds for the benefit of the children until the specified age (i.e., a Trustee);
- ensure that any inheritance does not negatively impact their child’s right to certain governmental benefits;
- protect assets from their children’s creditors;
- protect assets from being distributed to a child’s soon to be ex-spouse in a divorce;
- ensure assets are kept within the parents’ lineal descent; and
- keep assets from being taxable in their children’s estates
These benefits can be of particular concern to parents with significant life insurance or assets, parents of a spendthrift child or child with an addiction to drugs (see previous article by James Lanham (December 29, 2016) related to this topic), alcohol or gambling, parents who are not thrilled with their child’s current choice of spouse, and parents with special needs children.
Whether a trust could be beneficial to your family is highly fact dependent. Thus, in order to maximize the benefits you and your loved ones receive from your estate plan, you should meet with a qualified estate planning attorney to discuss all the unique details and circumstances of your family.
Contact Attorney Baker to discuss your Estate Planning needs. She can be reached at 330.264.4444 in our Wooster office.