Estate Planning and Bankruptcy and Inheritance

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Estate Planning and Bankruptcy and Inheritance Powered By Docstoc
The Right Way and the Wrong
Way of Leaving Money to Your
    Children (And Others)
• There are professions that help you make money. The job of an
  estate planning attorney is to help you leave your money (and other
  assets) to your children, grandchildren and other heirs.

• There are two sides of estate planning: The “money” side and the
  “family” side.

• The money side focuses on leaving more of your wealth to your
  family with less going to the IRS. Very boring stuff. I‟m falling
  asleep in mid-sentence just thinking about this.

• The “family” side focuses on leaving your children an inheritance in
  a manner that does not leave a legacy of chaos and conflict. Now it
  gets exciting -- because we are talking about the family killing each
  other over the inheritance!
         Introduction (cont.)
• The 95% Rule – 95% of the solution to any
  family inheritance problem is recognizing the
  problem in the first place.

• There is no class on “Family Inheritance
  Problem Recognition” in law school. The only
  school that teaches this is the School of Hard
  Knocks -- from seeing the kind of problems that
  arise after the parents have die and and their
  children divide the inheritance.
 What You DON‟T Want from Your
        Inheritance Plan
• 1. An Inheritance Plan that cause harm to the family
• 2. An Inheritance Plan that does not protect the “family
  money” for your child…and from your child‟s problems.
• 3. An Inheritance Plan that allows your surviving spouse
  to lose ownership and control of the “family money”.
• 4. An Inheritance Plan that your children may decline to
  carry out.
• 5. An Inheritance Plan that puts your children and
  property through the probate court process.
    Should You Tell Your Children
    About Your Inheritance Plan?
• Of course! Next slide, please!
• But first, a bit of exposition. You should tell your
  children about your inheritance plans because:
    1. Your children are already thinking about
  their inheritance.
    2. Your children may think they are getting
  more than you think they deserve.
    3. Your children need to know about the role
  they will play after you are gone.
            Goal No. 1:
 Don‟t Allow Your Inheritance Plan
   to Do Harm to Your Family
• No. 1 Rule: Treat your children fairly in
  your Inheritance Plan.

• No. 2 Rule: You will have screwed up
  your family forever if you violate Rule No.
       How To Accidentally
    Use Your Inheritance Plan to
      Screw Up Your Family
• You die with a child owing you money.
• You fail to equalize lifetime gifts to your
• You leave only one of your children as
  “The Boss” of the Inheritance Plan.
• You leave one property to one child and
  another property to another child.
• You make one child the “money manager”
  for another child‟s inheritance share.
      How to Intentionally
   Use Your Inheritance Plan to
     Screw Up Your Family
• Punish your successful child‟s success,
  and reward your dingbat child‟s failure.
               Goal No. 2
       Don‟t Let Your Inheritance
    Plan Give Your Children A Shot to
            Blow the Dough
• Two very obvious statements that you‟ve never thought
  about before:

•   When you die, you no longer own your money and
•    When you die, your children own what used to be
  your money and property.

• So what? So now the money and property you acquired
  after a lifetime of effort is now subject to the winds of
  your childrens‟ fates.

             What Kinds of Fates?
•   Addiction
•   Financial immaturity
•   Divorce
•   Remarriage
•   Disability
•   Income tax problems
•   Bankruptcy
•   Creditors
•   Lawsuits
•   Professional malpractice actions
•   Crazy Cults
•   Mandatory tithing to religious entity
•   Accidents with insufficient (or no) insurance
•   Medical bills
Protecting Your Child‟s Inheritance
         with (drum roll…)
• The PT is not a separate plan outside your
  Inheritance Plan. It is a part of your
  Inheritance Plan.
• The PT builds a “castle wall” around your
  child‟s inheritance.
• The PT protects your child‟s inheritance
  from risks of loss.
• The PT can be guaranteed protection…or
  no protection whatsover!
 Four (Count „em…four!) Types of
        Protection Trusts
• The Revocable Protection Trust – sometimes
  called the “Transparent Trust” because it‟s like
  having no protection at all.
• The Self-Directed Irrevocable Protection Trust
• The Third-Party Irrevocable Protection Trust
• The Discretionary Protection Trust
          “Transparent Trust”
• It‟s like a Living Trust for your child‟s inherited
• Your child is the owner, manager and
  beneficiary of all assets.
• Your child has complete freedom over the
  assets in the TT.
• So what good is it? It‟s still pretty good because:
•     a. Helps maintain separate property status of
•     b. Prevents your child from spending money
  on a separate property inheritance trust.
Self-Directed Irrevocable Protection
• Your child can only use the inheritance for the
  purposes set forth by you in your Living Trust.
• You give your child as much…or as
  little…freedom with the assets as you want.
• Your child is the manager and beneficiary of the
  inherited assets.
• Who is looking over your child‟s shoulder to
  make sure the inheritance is being used
• When your child dies, the inheritance goes to the
  “back-up beneficiaries”…like your grandchildren.
 Third Party Irrevocable Protection
• Someone else other than your child is in charge
  of your child‟s inheritance.
• Why tie your child‟s hands with his/her own
  inheritance? Because you are abjectly
  concerned your child will blow the dough.
• Who is the third-party to be the manager of your
  child‟s inheritance? If you can help it, never let
  your “normal” child be the inheritance manager
  for your “trust child”.
• Shall this IPT last for the rest of your child‟s life?
The Discretionary Protection Trust
• The “Neutron Bomb” of Estate Planning.
• You appoint a third-party to manage your
  child‟s inheritance…who has the
  COMPLETE AUTHORITY to decide to pay
  out to your child…OR NOT PAY OUT
  ANYTHING to your child.
• Why use this Trust? One
              Goal No. 3
  Making Sure Your Inheritance Plan
         Will Be Carried Out
• You will appoint, most likely, your children to carry out your
  inheritance instructions.
• Will your children do it your way…or their way?
• You can have the greatest Inheritance Plan in the world. But if its
  not carried out the way you want after you die, it might as well be a
  cocktail napkin. Examples of deviation:
•    “My money is family money…so your money is family money.”
•    “That‟s Dad‟s wish…that‟s not my wish.”
•     “Too many grandchildren.”
• Legal obligation to carry the instructions out your way? Of course!
  But…so what? You‟re dead! What can you do about it?
• Preventing your children from deviating from your inheritance
            Goal No. 4
 Protecting Your Surviving Spouse
• Protecting the assets FOR your SS…and
  FROM your SS.
• FOR your SS = Protecting your SS‟s
  ownership and control of the family
• FROM your SS = Preventing your SS from
  leaving your children‟s inheritance to a
  “newfound friend”.
Protecting Your SS‟s Control of the
           Family Money
• Protect from who?
• The “Last Caretaker”
• Your Children who are grasping for an “early
• Ways that your children can convince your SS to
  part with the family money now…instead of
  having to wait for your SS to die.
• Solution: Special provisions in your Living Trust!
Protecting the Family Money From
             Your SS
• You can leave it to your SS, but will your SS
  leave it to your children?
• Red Flag Alert! Remarriage means that the new
  spouse may end up with it all!
• How can you be certain that your SS will not
  deviate the family money from the bloodline?
• Solution: Bypass your Spouse
• Solution: The Marital Trust
     Sub-Goal: Preventing Conflict
     Between Your Second Spouse
    and the Children from Your First
• If you hate your second spouse, leave him/her in a
  situation where your “First Children” have to wait for your
  “Second Spouse” to die before inheriting the family
• Several conflicts:
•     1. Income vs. Growth
•     2. “You‟re Spending Our Money.”
•     3. “We Don‟t Want to Wait.”
•     4. “Get Out of Our House.”

  Solution: The Colin Powell/John Wayne approach to
  estate planning: Terminate the economic connection!
   How Much Inheritance…Is Too
        Much Inheritance?
• Do you have a child whose main job is waiting for you to
• Are your children spending their inheritance – and you‟re
  not dead yet?
• Have you spoiled your child with all his/her worldly
  needs, and your permissiveness has lead to an inability
  (or unwillingness) to lead a conventional lifestyle?
• Does your child march to the beat of a different drummer
  who believes work is something that you do – but that‟s
  just not for him/her?
• Do you love your child, but you just don‟t love what
  he/she does and you don‟t want the inheritance to
  maintain that lifestyle?
   The Incentive Inheritance Plan
• Two types of Incentive Plans
  1. The Conditional Incentive Plan.
  2. The Unconditional Incentive Plan.
    Conditional Incentive Plan
• The plan that is the stuff of movies.
• Your child meets a certain condition and a
  third party “money manager” gives him all
  or portions of his/her inheritance
• Why you love this plan – because you
  control your child‟s behavior and conduct
  from “Beyond the Grave”.
• Why I don‟t love this plan – It‟s the “carrot
  and stick” plan that will not work.
The Unconditional Inheritance Plan
• A true incentive plan.
• This is a plan that says to your child, “This
  is all you are going to get. If you want
  more, then you need to find a way to get
  more, such as getting and keeping a
  steady job!”
• In the Inheritance Arena, the family side is just
  as important as the money side.
• In the Inheritance Arena, you don‟t know what
  you don‟t know. The only way to learn about the
  inheritance problems and conflicts that arise is
  by someone bringing them to your attention.
  Some smart guy like me!
• After you have been made aware of these
  problems, you can put the appropriate plan in
  place to prevent them from arising in the first

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