By Michael L. Solomon of Solomon, Steiner and Peck

Most people think their will or trust provides that on their demise, that their assets pass to their children and if their children pass away the assets pass to their grandchildren. However, that only happens if your child dies before you. Hopefully, your children outlive you. If that happens, the typical will and trust have the money pass directly to your children immediately, or by the time they are a certain age. Either way, once the child inherits the money, it is
governed by your child’s will or trust, not yours. That means that upon your child’s death, the assets will most likely pay to your son-in-law or daughter-in-law and may pass on their death to someone else, such as a new spouse. For some people that is fine, but for others it may not be what you want. Many people want the money to stay in the family. To do that you need what we call a Bloodline Trust. 

For example, let us say and husband and wife have an estate of $500,000 and one child who is married with two children. A typical estate
plan will provide that the inheritance pays outright to the child. Once the child inherits the money, his estate plan will say that all of his estate, including what the child inherits from you, pays to his spouse. With the Bloodline Trust the $500,000 will be held in a trust for the benefit of the child. The child can be their own trustee and they can control the investments and decide how the money is distributed. Also, this is a private document that avoids probate. The government is not involved in administering the trust. However, when your child passes away the trust assets will pay to your grandchildren, not your in-laws.

The other major benefit of the Bloodline Trust is that the assets in the trust are also protected against creditor claims or divorce. The only creditors that can attack the trust are child support payments (for your grandchildren) and the IRS or the State of Ohio for income taxes due
on trust earnings.

In summary the benefits of a Bloodline Trust are as follows:
• Assets will be available for your children and the remainder will pay to your grandchildren, not to your in-laws
• Protects the assets from your children’s creditors
• Protects the assets from being split up if your child is divorced

Similar to a Bloodline Trust is what is called a Marital Trust. A Marital Trust is used many times in a second marriage. For example assume Mary and Tom are married, but each had been married before and have children from the first marriage. Tom wants to provide that on his death Mary receive the assets to live on, but wants to make sure that on Mary’s death, the assets pass to his children not Mary’s children. The only way to guarantee that result is to have your assets held in a Marital Trust for Mary’s benefit during her life. But on Mary’s death the Marital Trust will mandate that the assets pay to Tom’s children and not Mary’s children. Without the Marital Trust, Mary’s will or trust may have all the assets pay to her children.

This tool is also valuable on first marriages. If Tom passes away and Mary remarries, she may end up providing that the new spouse inherits the assets. Even if Mary has a prenuptial agreement saying her new spouse is not entitled to any of the assets, she can always change her mind and
provide for her new spouse. The Marital Trust protects against that issue.

The Bloodline Trust and the Marital Trust are two important types of trust, that you should consider in your estate plan.