Sponsored Content
Presented by Solomon, Steiner & Peck Ltd.
By Michael L. Solomon
When crafting an estate plan, the primary goal is often straightforward: to ensure your assets pass smoothly to your children. However, a simple will or joint ownership often leaves your carefully built legacy vulnerable to common, yet devastating, pitfalls specifically, the four great threats: divorce, death, lawsuits and poor spending habits.
The Bloodline Trust. The story of Mary and her children serves as a powerful cautionary tale about the inadequacy of basic estate planning.
The Cost of Simplicity: Mary’s Story
Mary’s wish was simple: split her $1 million estate equally among her four children, Frank, Lisa, Harry and Larry, and ensure the money benefited her grandchildren later on. Unfortunately, because she used a simple arrangement, her good intentions were thwarted by everyday life. On Mary’s death, her will stated everything outright to her children:
- Frank’s Share: Frank inherits $250,000 and commingles it with his wife’s assets. He subsequently divorces, and in the divorce, he loses half despite it being his inheritance.
- Lisa’s Share: On Lisa’s death, her assets passed to her husband, Bob. Bob later remarried and left the wealth to his new wife, meaning Mary’s grandchildren received nothing.
- Harry’s Share: Though a respected doctor, his inheritance was jeopardized by a malpractice lawsuit and was potentially exposed to creditors.
- Larry’s Share: Larry squandered his inheritance due to poor money management and personal issues, leading to regret years later and nothing for his children.
These problems are inescapable with simple tools like a will, joint accounts or standard trusts.
The Solution: The Bloodline Trust
The answer to these common, yet devastating, problems is the Bloodline Trust. This specialized trust is designed to provide robust, multi-generational protection that keeps your wealth within the family.
A Bloodline Trust solves the four great threats by:
- Divorce Protection: It holds the assets as separate property, insulating them from a child’s marital estate and potential claims by in-laws during a divorce.
- Asset Protection: It includes a “shutoff valve” provision, protecting the assets from a child’s creditors and professional lawsuits.
- Spendthrift Protection: For a financially irresponsible person such as Larry, a third-party trustee can be appointed to manage distributions, ensuring the inheritance lasts.
- Generational Planning: It guarantees that, upon your child’s death, the remaining assets pass directly to your grandchildren or other designated family members, bypassing the child’s spouse (unless otherwise specified).
Advanced Powers of the Bloodline Trust
The effectiveness of a Bloodline Trust is greatly enhanced by including specific, flexible powers that allow the trust to adapt to changing circumstances and maximize financial benefits.
Tax Optimization and Stepped-Up Basis
Including a General Power of Appointment (GPOA) is a sophisticated feature that offers a significant tax advantage. While the trust protects assets, granting a GPOA over the trust assets essentially “pulls” those assets back into the child’s taxable estate which allows the assets to receive a new fair market value tax basis at the child’s death (a “step-up in basis”), eliminating years of capital gains and saving the grandchildren substantial income tax upon sale.
Specialized Distribution Powers
To balance asset protection with beneficiary control, a Bloodline Trust can allow your child to change the ultimate disposition of assets among such child’s children in case such grandchild becomes someone your child no longer feels deserves or needs the money.
Michael Solomon is a partner in the law firm of Solomon, Steiner & Peck Ltd. with offices in Mayfield Heights, Independence and Westlake, Ohio. His areas of practice include estate planning, tax planning and business matters. He may be contacted at 216-765-0123, email – [email protected]
