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This is the single most discussed topic with our clients. For individuals with married children or grandchildren, their second largest anxiety (after estate taxes) is the fact that their assets might not pass to their grandchildren without proper planning.
There are generally three options as to how your children can inherit. First, leave everything outright to the children, which rarely occurs if the assets are substantial. Second, if you have minor children, we typically recommend creating trusts for the children which terminate at ages such as 30 and 35, when they are older, more mature and can handle the inheritance. The third option has become most commonly (and almost universally) used by our clients with adult children and grandchildren, which is to hold the inheritance in a lifetime trust for the children, also known as a “generation-skipping trust”. The primary reason is for creditor protection for the children. Creditors can arise as the result of an act of a failing business with a bank as a creditor, malpractice, if your child is a professional, or the divorce of your child. Also, in New York, upon the death of your child, the trust will prevent your child’s spouse from receiving one-third (1/3) of the assets allocated to the trust.
The “generation-skipping trust” provides income to the children and distribution of principal with the consent of the trustee. When the child dies, the trust will be distributed to the grandchildren. The advantage of the trust is that since the child does not have control of the assets (the trustee has the control), creditors cannot attach the trust principal. As a side benefit, this technique enables you to “dictate from the grave” that your estate will eventually pass to your grandchildren when your child dies and will not pass to your son-in-law or daughter-in-law upon your child’s death.
Please feel free to reach out to the estate planning partners at Danziger & Markhoff LLP, Michael Markhoff, Harris Markhoff or Christopher Miehl, with any of your questions. You can reach us at mmarkhoff@dmlawyers.com, hmarkhoff@dmlawyers.com and cmiehl@dmlawyers.com
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