During the estate planning process, you will need to decide whether to bequeath an inheritance outright, in a lifetime trust, in a “staggered age” trust, or a combination. For purposes of simplicity, your child is the sole beneficiary at your death. 

Outright Bequest

  • Your child has complete control over the inheritance. The title may be in the child’s sole name or owned jointly with any person, with or without survivorship.
  • With complete control, your child may give or bequeath all or any portion of the inheritance to whomever the child wants, including the child’s spouse. What if your child dies and bequeaths all of the child’s inheritance to the child’s spouse, and then the child’s surviving spouse remarries? The remarried spouse may give the inheritance to a second spouse at his/her later death or to children born to the second marriage that are favored over the children of your deceased child.
  • An inheritance is not subject to division between your child and her/his spouse under equitable distribution provided the inheritance is not merged with marital assets. North Carolina is a common law state.

Lifetime Trust

  • A lifetime trust is used to ensure that your child’s inheritance passes to your grandchild at your child’s death.  
  • A lifetime trust provides the child with creditor protection.
  • A lifetime trust provides protection from equitable distribution.
  • Trust distributions are governed by the Trust Agreement. For example, your child may receive all or a portion of the income of the trust. The child’s lineal descendants may be secondary beneficiaries of the trust. Principal may be distributed only to supplement the child’s other financial resources or for the child’s health, education, support, and maintenance. 
  • Trust assets are invested based on the child’s needs and reasonable lifestyle. 
  • The Trust Agreement usually provides that at the child’s death, the remaining trust assets pass to the child’s lineal descendants, outright or in trust. It is extremely rare that in-laws are permissible beneficiaries. The in-law will inherit from the in-law’s own family, while your assets will pass ultimately to your family.

Staggered Age Trust

  • A middle ground is to retain an inheritance in trust until the beneficiary attains specified ages. For example, the child may withdraw 1/3 of the trust property when the child attains age 28, 50% of the remainder at age 32, and the remainder at age 36. If the child withdraws 1/3 of the trust property at age 28 and spends the assets foolishly, then hopefully the child will learn from her/his mistakes and use the remaining withdrawals wisely.
  • Distributions may be made to the child and the child’s lineal descendants for health, education, maintenance, and support. Between distributions, the trust assets are protected from creditors and from equitable distribution.

Meg D. Goldstein, Attorney-at-Law, has 45 years of extensive legal experience and is well-versed in estate planning, trust and estate administration, fiduciary relationships, charitable giving, and the formation and continuation of business and charitable entities. Her priority and passion are to ensure that each client’s specific needs and desires are addressed in a well-presented plan to limit future controversies between family members and business associates. She can be reached at 704.756.3626 or visit www.mgoldlaw.com.