Bloodline Planning

What is It?

Bloodline planning makes sure that the inheritance you leave your children or grandchildren gets to them, regardless of creditors, predators or divorce.

Why do you need one?

You might need a bloodline trust for your children or grandchildren if you have any of the following situations:

Your child is a great person but isn’t good with money
Your child’s spouse is a spender
Your child may be facing a divorce
You’re not sure about your child’s new marriage
Your child has credit problems
You want to set aside a pension-like income stream for your child when you’re gone
Your child might be sued – think doctors and surgeons who are sued routinely today
Your child is married to someone with “big ideas” for your money, think fishing lodge
You want to make sure your grandchildren have money set aside for their college fund

A Heritage Trust may be the answer.

The Heritage Trust is a sophisticated estate planning vehicle used to protect an inheritance for multiple generations. Heritage Trusts are created by the parents who normally create one for each child. It is generally unfunded until the death of both parents. At the death of the last parent, each Heritage Trust is funded by the child’s share of the inheritance and is used for the benefit of that child (the Primary Beneficiary) as needed. At the death of the child the trust continues on for that child’s blood children (the Secondary Beneficiaries).

Of course, it does not have to be set up by parents for children, it can be set up by anyone and for nieces, nephews, or any individual that they wish to leave a protected inheritance.

Why protect the inheritance?

Most estate plans only solve the problem of getting from point “A” to point “B”. In other words, the job of most estate plans end once the inheritance goes from you (point A) to your kids (point B). But what happens after your children receive the inheritance and then something terrible happens to them, like a divorce, bankruptcy, or lawsuit? What happens if your child lives to receive the inheritance but shortly thereafter dies? In most plans these questions are left unanswered and often the inheritance is left exposed to unfortunate events that might befall the child like a costly divorce, business venture failure, lawsuit, or death.

Divorce Protection

It is likely that your child will commingle their assets with their spouse when they receive an inheritance from you. If they divorce after the inheritance is mixed in with their marital assets, the division of assets can be very costly for your child. According to the American Psychological Association about 40%-50% of married couples divorce. Even if your child has a great divorce attorney and that attorney is able to protect the bulk of the inheritance, consider the cost of that attorney. There is a reason why they say marriage is grand, but divorce is a hundred grand.

Bloodline Protection

Getting from point “A” to point “B” is good but also getting from point “B” to point “C” (the grandkids) is even better. Most estate plans say who will inherit if their child dies before them. However, it is more common that your children survive you to receive their inheritance from you. Once they accept the inheritance and they die - even if it’s just a few days after having legally inherited from your estate - their assets will normally go to their surviving spouse by their will, trust, or if none, by the laws of the State of Ohio and not to your blood grandchildren. You might like your in-law, but remember that the in-law may re-marry someone with kids of their own or have additional kids with their new spouse. Should that happen, the inheritance may be further and further spread out to provide for non-blood grandchildren.

Lawsuit and Creditor Protection

Children in high liability occupations like doctors, nurses, attorneys, landlords, and business owners, will appreciate having a protected inheritance since many of their own assets are subject to their business decisions or negligent actions. However, even the children that have very low liability occupations and who strive to do everything right in this world are not sheltered from the liabilities that we all carry in life. We live a litigious society. Anyone can sue anyone for almost anything. Further, the size of judgments produced by sympathetic juries for trips, falls, car accidents, and dog bites will make your hair stand on the back of your neck – assuming you are on the receiving end of the lawsuit.

Bankruptcy Protection

According to the Motley Fool website, Ohio is in the top 10 of states with the highest bankruptcy rates. Whether the cause is bad spending habits or just unfortunate life events, a parent generally wants to help their child through tough times. If it happens now while you are living you can be there to get them back on their feet. But what if it happens after your death? Their inheritance would be swallowed up, along with their own assets, to pay off creditors before the bankruptcy court will give them any relief.

Medicaid Protection for Your Children

If you leave your child money outright and he/she has health problems and goes onto Medicaid to pay their healthcare bills, then all of the money that your child inherited from you will be subject to a Medicaid spend-down. What if your child's spouse is the one who has the health problems? Is the inheritance you left your child safe from the spouse’s Medicaid spend-down? The answer is no, not if you left it to your child outright. To protect your child's inheritance from a Medicaid spend-down, most people think that the only solution is to disinherit, but there are better options. Ohio and Federal law provides for certain trusts that are designed to exclude inherited assets from being countable for Medicaid and other Federal programs.

Spendthrift Protection

A spendthrift is someone who spends in an irresponsible and extravagant manner. Spendthrift protection takes inheritance protection one step further by protecting a child's inheritance from the child's own spending habits. Some would call this ruling from the grave, however you define it, the result is that your child's inheritance is guaranteed to last them through their retirement years. With Social Security being underfunded and most company pensions vanishing, a guaranteed retirement is a great thing to give your child.

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*Dually certified by the National Elder Law Foundation as Certified Elder Law Attorneys and the Ohio State Bar Association as Specialists in the Area of Elder Law.