Estate planning can be a source of drama for families. This is especially true when someone is left out. A good goal when creating your estate plan is to try and prevent any unnecessary drama. However, there are some instances where you may want to disinherit a loved one.
It may be a surprise to learn that not all heirs are fiscally responsible. Besides, some heirs may be fiscally responsible and still may incur substantial debt such as medical debt. Consequently, a loved one to whom you are considering leaving an inheritance may be at risk of having their inheritance taken by creditors.
In North Carolina, if a creditor gets a judgment, that judgment automatically attaches as a lien to real property owned or subsequently inherited by the debtor. This is true as long as the judgment is outstanding. So, the home you are leaving behind may be subject to the debt of the heir.
Perhaps your loved one is a special needs individual who may be entitled to a means tested government benefit like Supplemental Security Income or Medicaid. An inheritance could disqualify them from this much needed benefit. Thus, unless the inheritance can replace the lifetime benefit, then you may want to think twice before leaving a bequest to them outright.
You may love your children, but you don’t get to pick who they marry. A spouse can be a significant factor to planning. Perhaps you don’t like the influence a spouse may have on your child. Maybe you want to make sure that your child’s share goes to your grandchildren and not the spouse should your child predecease you.
All of the issues can be solved with a simple solution, don’t leave the inheritance to the heir, leave it to an irrevocable trust. Your estate plan can integrate a provision that creates a trust for your loved one upon your death (called a “testamentary trust”). This provision can either be in a will or a trust created during your life. The testamentary trust will allow you to leave assets that your loved one can benefit from without the assets passing to them outright.
The testamentary trust is an irrevocable trust where you appoint a trustee to manage the assets on behalf of your beneficiary. Because it is irrevocable, it is not considered an asset of the beneficiary. Thus, the trust will allow your loved one to keep a means tested government benefit (this type of trust is called a Supplemental Needs Trust but is created in the same way), avoid creditors, and block greedy spouses.
If you have questions about testamentary trusts, let the experienced attorneys at McIntyre Elder Law help. Give us a call 704-259-7040.
Brenton S. Begley
Estate Planning & Elder Law Attorney