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The Benefits of Bloodline Trusts

Posted by: Begley Law Group

By Thomas D. Begley, Jr., Esquire, CELA

When Should You Consider a Bloodline Trust?

A Bloodline Trust offers protection to your children from: (1) divorce, (2) creditors, (3) death of children and subsequent remarriages of children’s spouses, and (4) squandering the money.

Divorce

The old saying, “We can pick our friends, but we can’t pick our family,” is particularly applicable in the case of sons- and daughters-in-law. Often, our children choose wonderful, trustworthy spouses with whom we get along very well. But occasionally, they choose partners who cannot be trusted, leaving us concerned for the emotional and financial well-being of our children and grandchildren.

A child’s poor choice of spouse can translate into a parent’s estate planning headache, particularly when there is a divorce. With 50% of all marriages and 70% of second marriages ending in divorce,[1] this is not an uncommon dilemma. If there is a divorce, your son or daughter-in-law may wind up with 50% of your child’s inheritance.

If you want to protect your child’s inheritance from an irresponsible spouse or ex-spouse, consider establishing a bloodline trust.

Creditor

If you leave your estate to your child and the child is later sued, the child’s creditors can attach the inheritance. The creditor may wind up with 100% of your child’s inheritance. However, if the inheritance is left in a Bloodline Trust, it is protected from claims of creditors.

Who Serves as Trustee of the Bloodline Trust?

There are two options with respect to the trustee of the bloodline trust. First, if there is a responsible child and the concern is to protect the money from creditors, divorce, or death of your child, then the child could be sole trustee and be given total charge with respect to distributions from the trust. Your child, acting as trustee, can distribute principal and income to or for the benefit of himself or herself or to his or her children. A sibling or friend could be named as successor trustee. If the child is sued by a creditor or spouse for divorce, then the child is removed as trustee and the sibling is substituted as successor trustee. When the lawsuit is ended, the child is reinstated as trustee and the sibling is removed as trustee. If your child dies before the money is all spent, you may want it to remain in trust for your grandchildren. At that time, divorce is no longer an issue, so the son or daughter-in-law could serve as trustee for their child’s share.

Second, if you are concerned about your child squandering the money, it is better to get an outside trustee. A sibling could serves as trustee, but they are put in a position where your irresponsible child is constantly asking for money and your responsible child should be saying no. This causes strain in family relationships. A professional outside trustee is better in that situation. If a professional outside trustee is used, a sibling should be given the power to remove and replace that trustee if things don’t work out.

[1] Divorce Magazine, http://www.divorcemag.com/statistics/stats.US.html

Filed under Estate and Trust Administration.
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We provide elder law services in the following areas:
New Jersey and Pennsylvania Medicaid Planning, Medicaid Applications, Asset Protection, Special Needs Trust, Estate and Trust administration and Estate Planning.
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