A Cautionary Tale: When Inheritance Falls into the Wrong Hands
Imagine working your entire life to build a nest egg, only to have it end up in the hands of someone you’ve never met—or worse, someone you actively dislike.
This nightmare scenario happens more often than you’d think. A Minnesota couple left their beloved family lake house to their son, believing he would pass it down to their grandchildren. But after he passed, his surviving spouse inherited the property, remarried, and when she later died, the home went to her new husband’s family. A treasured family asset was lost forever.
In another case, a woman inherited a significant sum from her parents. Years later, when she divorced, her ex-husband successfully claimed a portion of the inheritance in the divorce settlement. Why? Because she had commingled the funds with marital assets, making them vulnerable under the law.
These tragic situations could have been avoided with one simple tool: a Lifetime Asset Protection Trust.
The Three Ways to Leave Assets to Your Children
When you pass away, there are three main ways you can leave assets to your children:
1. Outright Distribution (The Riskiest Option)
This is the default approach most people take. Your child receives their inheritance all at once, in their name, with no restrictions. While this may seem simple, it exposes the funds to several risks:
- Divorce: If your child divorces, their spouse may be entitled to a portion of the inheritance.
- Lawsuits: If they are sued, the inheritance is fair game for creditors.
- Financial Hardship: If they face medical debt, bankruptcy, or financial hardship, the inheritance can be lost.
2. Staged Distribution (Some Protection, But Still Risky)
Some parents try to protect their children’s inheritance by using a staged distribution trust—where assets are released in increments (e.g., one-third at 25, one-third at 35, and the remainder at 45).
While this offers some control, it does little to protect the assets once distributed. If your child is in the middle of a divorce, lawsuit, or financial crisis when they reach one of these milestones, the distributed funds can be taken.
3. Lifetime Asset Protection Trust (The Best Protection)
A Lifetime Asset Protection Trust is the gold standard for ensuring your child’s inheritance stays protected, no matter what happens in their life.
Here’s how it works:
- Separate Trust: Your child’s inheritance is placed in their own separate trust.
- Control: They can be named as their own trustee, giving them full control over how and when they access the funds.
- Crisis Management: If a crisis arises (e.g., divorce, lawsuit, job loss), they can appoint an independent trustee to temporarily block access from outside threats.
- Continuous Protection: The assets stay in the trust, protecting them from creditors, lawsuits, and even future estate taxes if your child has a taxable estate.
- Generational Security: If your child passes away, the assets can flow down to your grandchildren, maintaining the same protections for them.
Real-Life Proof: How a Lifetime Trust Saves Inheritance
A Win: Protecting Assets in a Divorce
One of our clients, Sarah, inherited a substantial sum from her parents. Thanks to her parents’ foresight, her inheritance was placed in a Lifetime Asset Protection Trust. When Sarah later went through a difficult divorce, her husband’s attorney tried to claim a portion of her inheritance—but failed. Why? Because the assets were in the trust and never commingled with marital funds. She walked away from the divorce with her entire inheritance intact.
A Loss: When Planning Fails
Contrast this with James, whose parents left him assets outright. He assumed his inheritance was safe because it was considered non-marital property. However, because he deposited the funds into a joint account with his wife, they became “commingled” under the law. When his marriage ended, his ex-wife walked away with nearly half of what his parents had left him.
Why This Protection Matters More Than Ever
Life is unpredictable. Even the most responsible, financially savvy individuals can face sudden hardships.
- Divorce Rates: Nearly 50% of marriages end in divorce.
- Medical Debt: Medical bills are reported to be the number-one cause of U.S. bankruptcies. One study has claimed that 62.1% of bankruptcies were caused by medical expenses.
- Lawsuits: If your child is a business owner, doctor, or professional, they are at an even greater risk of being sued.
A Lifetime Asset Protection Trust ensures that no matter what challenges your child faces, their inheritance remains safe, secure, and within the family.
Take the Next Step to Protect Your Family’s Legacy
Your hard-earned assets should benefit your family—not an ex-spouse, a lawsuit, or the government.
At Roulet Law Firm, we make this process simple and stress-free. With nearly 30 years of experience helping families protect their wealth, we will work with you to design custom Lifetime Asset Protection Trusts tailored to your unique goals.
Call us today at our Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087 to schedule your consultation. Or you can fill out the contact form on this page and a member of our team will reach out to you to schedule your consultation.
Or, if you are not yet ready to schedule a consultation, but would like to discover more, join us in my upcoming masterclass where I will be revealing the strategies I use with my private clients and their families to avoid probate, save on taxes, and protect the money they leave for their kids. Click here to sign up.
