Trusts Can Protect and Preserve
With advance planning, you can protect your loved ones from their eventual inability, disability, predators (e.g., divorce claims, alimony claims) and creditors. When doing your estate planning, if you leave your assets in a “spendthrift trust” for your loved ones, instead of outright, you can protect them. You can protect them from (1) their inability to manage the assets, (2) their eventual disability, (3) predatory spouses in divorce proceedings who try to get 50% of their assets, and (4) their creditors. This kind of planning can provide you with the peace of mind of knowing that what you leave your loved ones will not be carelessly squandered, and will not go to predatory spouses or money hungry creditors.
How does this work? An example best illustrates. Let’s say Jeremy is not married and has one child named Emily who is married to Ian. Emily and Ian have Jeremy’s only grandchild, Sam. Emily is a medical doctor with a busy practice. Jeremy does not like Ian and anticipates Emily and Ian may divorce someday. Jeremy wants to leave his estate to Emily but he wants to make sure that Ian will not get his assets. He wants to make sure that if something happens to Emily, that Sam will get the assets he left to Emily.
If Jeremy has a simple will that says Emily is to get everything “outright”, Emily could easily lose Jeremy’s financial legacy and estate. How? Poor money management, or if Emily becomes disabled and Ian is appointed guardian by the court and he squanders the money, or if Emily and Ian divorce and the court rules Ian is entitled to half Emily’s assets (including the family property Jeremy left to Emily), or if Emily is sued for medical malpractice and the claimants recover some or all of Emily’s assets (including the family property Jeremy left to Emily).
If, however, Jeremy left his assets in a “spendthrift trust” for Emily’s benefit with Sam as a remainder beneficiary, these assets would be protected. An advisor or financial trustee could make the assets grow and protect them from poor management or poor judgment. If Emily became disabled, Ian would not be able to squander that money. If Emily and Ian divorced, Ian would not share in the assets Jeremy left to Emily. They would be protected because they were in trust. Also, if Emily were sued for medical malpractice and found liable or decided to settle, the claimants would not share in the assets Jeremy left to Emily. As you can see, a little bit of planning can make very big difference for the family and can go a long way towards protecting your family property.
Our society is litigious and statistics indicate about 50% of marriages end in divorce. Leaving assets “in trust” instead of “outright” can provide you with the peace of mind you deserve and protect your family and your family property.
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.