You Must Plan Ahead To Protect Your Property
Statistically, one out of every four dollars you leave “free of trust” to a married child will be lost in a divorce. 50% of marriages end in divorce. When people become divorced, they typically lose half their assets. Thus, one out of every four dollars you leave free of trust to married child will be lost in divorce. Can you protect against this? Yes you can. How? Leave assets “in trust”.
If you leave assets “in trust” for loved ones, YOU CAN assure the assets will be protected from lawsuits, predatory spouses in a divorce, creditors, and estate taxes. If you leave assets “free of trust” to loved ones, they will have full ownership BUT the assets will be exposed to lawsuits, predatory spouses in a divorce, your loved ones creditors and the estate tax in loved one’s estate Can your child be the trustee of their own trust and still get the asset protection? Yes so long as the trust is carefully crafted with proper language. Leaving assets in trust for a child with the child serving as their own trustee is kind of like leaving money to your child in a lock box and they are the only ones who hold the key to the box. Furthermore, if the trust is drawn properly, then no Court will have the authority to compel them to open the box and pay the money in it to their creditors or their spouse in a divorce.
As this article goes to print, there is no federal estate tax. That is likely to change. We will probably get more clarity on the issue in the next few months.
A good estate plan will leave assets “in trust” so as to protect the property from threats. Special instructions need to be in a trust in order to assure maximum income tax deferral on retirement assets. 25% is a lot to lose to an in-law in a divorce when some advance planning can guarantee no loss. And so the moral of the story is, you should plan ahead to protect your property.
Contributed by Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.