Q. I want to leave my assets to my children, but is there a way to protect the assets from a future divorce or from my child’s creditors?

A. Money left to children can dis­appear for a variety of reasons – divorce, bankruptcy, litigation, or bad investments, just to name a few. One way to protect the family money is by the use of a trust.

Scenario . . .

Mary and John have four adult children, all with varying degrees of financial success. Dennis, the oldest and most successful finan­cially, has no need for financial support from his parents. Judy, next in line, unfortunately has been through a terrible divorce and is struggling to raise her son on her own. Paula and Frank are both married, but their marriages have had their ups and downs. Paula’s husband has been known to invest their limited resources into failed get-rich-quick schemes. Frank has just borrowed a lot of money to start his own dentistry practice.

Parents never stop worrying about their children and Mary and John are no exception. They are worried about more divorces, about whether Judy will have enough money, whether Frank’s business will flourish, or whether he will be sued by a patient. They are also worried about there being enough money for their grandchil­dren.

So what can Mary and John do to make sure what assets they leave actually helps their children and grandchildren? The answer is to use a trust in their estate planning. Trusts can continue after the parents’ death through the life of the children and, if the grantor chooses, during the life of the grandchildren as well. The funds are left for the benefit of the children and grandchildren, but limits are placed on access to the trust funds. The assets are there if needed, but cannot be spent down on a whim. This restriction pro­vides the necessary protection.

The funds in the trust are protected from creditors in the event of bankruptcy. Like credi­tors, plaintiffs in lawsuits cannot invade the trust. Funds left for the benefit of Frank will not be avail­able if he is ever sued for dental malpractice. Also, the funds will not be a marital asset in the event of a divorce. A properly prepared trust will protect your family from creditors, liability claimants and a future divorce.

An independent trustee can protect a trust beneficiary from bad choices, whether they are risky investments or foolhardy spend­ing. While parents can’t protect their children from bad luck, they can create a cushion for them if it occurs. Some trust beneficiaries will object to not having complete control and access to the funds. This is a trade-off. Do the benefits outweigh the disadvantages? You will have to decide what is best for your situation.

Q. I have a disabled child. How can I best provide for their future well being?

One of the major concerns for par­ents with children with disabilities is how to provide for their financial future. Here are some legal tips to consider:

A. Buy enough life insurance. A parent is irreplaceable, but someone will have to fill in. In all likelihood, that person or family will have to pay for at least some services the parent had provided when able. If the estate is not large enough for this purpose, it can be made large enough through life insurance proceeds. Premiums for second-to-die insurance, which pays off only when the second of the two parents passes away, can be surprisingly low.

• Set up a Special Needs Trust. Any funds left for a disabled child, whether from an estate or the proceeds of a life insurance policy, should be held in trust for his or her benefit. Leaving money for anyone with a disability jeopardizes public benefits. Many people with disabilities cannot manage funds, especially large amounts. Some families disinherit disabled children, relying on their siblings to care for them. This approach is fraught with potential problems. Siblings can be sued, get divorced, disagree on their responsibilities, or use the funds for their own ben­efit. It can also cause tax problems for siblings. The best approach is setting up a trust fund set aside for the disabled child, known as a Special Needs Trust.
• Prepare a Will and include the appointment of a Guardian. While a will and the appointment of a guardian is important for anyone with minor children, it is doubly so if the child is disabled. Finding the right guardian can be difficult. In some cases, the care needs of the child may be so demanding that he or she will need a different guardian from his or her siblings. The parents need to make these determinations while they can.
• Have a Care Plan. All parents caring for disabled children should write down what any successor caregiver would need to know about the child and what the par­ent’s wishes are for his or her care. For example, should the child be in a group home, live with a sibling, or be on his or her own? Usually, the parent knows best, but they need to pass on the information. They can explain what helps, what hurts, what scares their children, and what reassures them.
• Coordinate with other family members. Even a carefully devel­oped plan can be sabotaged by a well meaning relative who leaves money directly to the child with a disability. If a special needs trust is created for the benefit of the child, grandparents and other family members should be told about it so that they can direct any bequest they may wish to leave to that child through the trust.