When A Will Isn't Enough, Some Types Of Trusts May Fit The Bill

NEW YORK (MarketWatch) -- In today's increasingly complex world, a will may no longer be enough to ensure that your legacy ends up in the right hands.

Wills originated in simpler times, which means they don't contain adequate provisions for things like divorce, remarriage, lawsuits or credit problems, says Armond Budish, an estate planning attorney. In his 2007 book "Why Wills Won't Work," Budish explains why wills can't guarantee that your money will stay in the family, and why he recommends generation-skipping trusts instead.

It's easier than you might think for your children's inheritance to go to an unintended recipient, if you rely on a will. You might bequeath your money to a child who divorces, for instance, only to have half of it ultimately go to his or her ex-spouse.

Or you could have a son that dies young. In most cases, his money would go to his wife, not to your grandchildren. If his wife went on to remarry, there's a chance your estate would end up being passed on to a complete stranger: her new husband. Or, you might will your money to a daughter who is sued or goes into deep dept. A will wouldn't protect her inheritance from being seized.

If you're intent on making sure that your bequest benefits your family, consider creating a generation-skipping trust (also called a family protection trust or bloodline trust) rather than a will, said Budish.

A well-drafted generation-skipping trust can include language guarding against all three eventualities. This type of trust can be designed to ensure that if you leave money to your son, it remains with him, not his ex; a generation-skipping trust can also guarantee that your estate is bequeathed to your grandchildren as opposed to your child's spouse; and a generation-skipping trust can keep the assets you pass down from being eaten up by lawsuits or creditors.

For more information on generation-skipping trusts, talk to an estate planner.

By Marshall Loeb