We have a natural instinct as parents to protect and safeguard our children. (For some examples of amazing parental reflexes, check out some of these “Dad Saves” on YouTube. Over the years, safety features on things like car seats and playground equipment have become increasingly sophisticated and are much better at protecting our children than in years’ past. Similarly, in today’s estate plans it is possible to implement much more effective methods of protecting our children from financial ruin, even after we’re long gone.
In today’s age of high divorce rates, lawsuits, and bankruptcies, there is an ever-increasing chance that property you leave to a child could end up in the hands of his or her creditors or a spouse in divorce. No one wants this to happen with their hard-earned property. Fortunately, there are relatively simple and cost-effective asset protection strategies that can be integrated into your estate plan to ensure your wealth stays in your family.
The best way to protect a beneficiary’s inheritance is with a trust. By holding a beneficiary’s share in a properly drafted trust, it is possible to give them the benefit of the assets without exposing them to the claims of their creditors. Such trusts are often used when the beneficiary is a minor, a substance abuser, is disabled, or is financially irresponsible.
However, even financially responsible children can benefit from asset protection trusts, which can be setup in ways that do not restrict the child’s access to the property but still protect it from creditors. Trusts can also be used to protect a vulnerable surviving spouse from predators or to protect a deceased spouse’s share of the estate if the surviving spouse remarries.
Most people don’t know about these asset protection strategies or that you can use the same revocable living trust you created for probate avoidance purposes to serve as a virtually impenetrable asset protection trust after you’re gone.
Asset protection is achieved by avoiding any direct distributions to your heirs and, instead, distributing the assets of the living trust to individual sub-trusts created for each heir’s benefit. You can decide how much control each heir will have over the management of their individual trusts. Some sub-trusts may restrict how those funds are to be used while others may give heirs virtually unrestricted control. In either scenario, the trusts are designed so that if creditors ever came after your heirs, their inheritances would be safely tucked away in the trusts you established for them and outside the creditors’ reach.
At eLegacy, we understand asset protection, and we’ll include this in our discussion with you as we work to design an estate plan that fits your unique needs and circumstances. To learn more about how to incorporate asset protection into your estate plan, contact us today for a complimentary consultation.