Five Reasons You Need to Plan Other Than to Avoid Probate

The five main reasons to get a good estate/asset protection plan other than to avoid unnecessary probate are:

   1. to keep your assets in your family bloodline;
   2. to avoid unnecessary loss of assets to your in-laws if your child or children        become divorced;
   3. to leave assets to spouse and children protected from lawsuits;
   4. to avoid unnecessary income tax acceleration on retirement plans;
   5. to avoid unnecessary estate taxes.

   Keeping your assets in your family bloodline

How is this done? Leave assets in trust for your loved ones and dictate that the remainder interest (the amount left over that they did not use) will go to their children who are your lineal blood descendants. For instance, Jack leaves all assets to Susie, in trust for her benefit, with the remainder to Jack’s children. If Jack wants his kids to enjoy the remainder interest so the assets are protected from lawsuits, he will leave those assets in trust for his children.

   Avoiding unnecessary loss of assets to your in-laws if your child or    children become divorced

Since approximately 50% of marriages end in divorce, leaving your assets to your loved ones protected from loss in divorce can be quite beneficial. The trick here is to make sure the standard for distributions in the trust are drawn properly to accomplish the loved one having full use of the property but at the same time excluding the funds from the claims of creditors and claims of alimony and support.

   Leaving assets to spouse and children protected from lawsuits

This too, is quite important to our clients. So, how is it done? Well, the same way you keep assets in the bloodline and avoid unnecessary loss to in-laws, see above. It all comes down to leaving assets “in trust” for a loved one. The trustee of the trust can be the beneficiary and you can still manage to incorporate all the benefits of asset protection alluded to above. Some may call this a beneficiary controlled spendthrift trust (BCST).

   Avoiding unnecessary income tax acceleration on retirement plans

Regarding IRA’s, if you are to designate a trust as the beneficiary for estate tax reasons or asset protection reasons, then special care must be taken to ensure the beneficiary designation is proper and that the trust has the necessary language to comply with the regulations dictating that the oldest beneficiary will be the measuring life for purposes of computing required minimum distributions.

   Avoiding unnecessary estate taxes

This is easily accomplished with a properly drawn trust. The trick here is to make sure the assets are titled properly so they will be able to go where we want them to go.

For all of the above reasons, putting together a good estate/asset protection plan is one of the most important things you will ever do.


Contributed by:

Mark F. Winn, J.D., Master of Laws, LL.M. in Estate Planning, is a local tax, asset protection and estate planning attorney.