Plan to Keep it in Your Family

Planning to keep your assets in your family is a worthy goal. It is best achieved with a comprehensive trust based estate plan. You would use trust law to:

     (1) avoid unnecessary probate,
     (2) avoid unnecessary taxes, and
     (3) avoid loss to creditors or in-laws in the event of divorce.
          It’s as simple as that.

Avoiding unnecessary probate is easy. How is it done? Create a revocable trust. Re-title your assets to your revocable trust. Goal accomplished.

Avoiding unnecessary taxes is easy. How is it done? Leave assets “in a shelter trust”. The shelter trust, the terms of which are usually embedded within your revocable trust, needs to be drawn properly so as to provide loved ones with enough control so they can get the total benefit, use and control but just enough restriction so the funds are not subject to the estate tax, or as some people call it “the death tax”. It is a balancing act. Special care also needs to be made to ensure the formula or mechanism that will define the scope of the shelter trust will work and that beneficiary designations on retirement assets, annuities and life insurance work with the tax planning. This is where a lot of plans fail.

Avoiding loss to creditors and in-laws is easy to accomplish. How is it done? You provide within the body of your revocable trust that assets will be left to loved ones in trust. The terms of the trust will be embedded within your revocable trust, just like the shelter trust, discussed above, and the terms will provide that the right the beneficiary has to the income or principal shall NOT be subject to the claims of their creditors. It can’t get much more simple than that.

Doing all of these fundamental things to protect your property and ensure it will not be lost to courts, taxes, creditors of your loved ones and your in-laws is simple and should be done by everyone.

Let’s say Frank and Ethel have a daughter named Evelyn. Evelyn is married to Sam. They have a child named Freddie. Frank and Ethel decide to take steps to keep their assets in their family, so they create an estate plan. The plan does all the three things alluded to above. What happens after Frank and Ethel are gone and Evelyn inherits everything in trust for her own benefit? Evelyn is total legal owner as trustee and beneficial owner as beneficiary, so she has total use, benefit and control. Also, when / if she gets divorced, the money in trust for her benefit that she inherited from Frank and Ethel is safe. It will NOT be divided in a divorce. Why? It is clearly separate property. Little Freddie has a future interest, not Sam. Now, that is good planning.

Contributed by
Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.