Keeping your property out of court and in your family is the name of the game. Leaving your assets in a “spendthrift trust” for your loved ones, instead of outright, can protect the funds you leave them from loss to creditors and divorce.
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 (which could include what were your assets); and 4. their creditors.
This kind of planning can provide you with peace of mind in knowing that what you leave your loved ones will not be carelessly squandered and will not go to predatory spouses or money hungry creditors.
You can also guarantee that the money will stay in your family bloodline. Many clients want to do this.
For instance, let us assume Frank is a widower. He has one child, Jane, who is married to Paul, a struggling artist.
Jane and Paul have Frank’s only grandchild, Ferdinand. Jane is a medical doctor with a busy pediatric care practice.
Frank does not like Paul and believes Jane and Paul will divorce someday. Frank wants to leave everything he owns to Jane but he wants to make sure that Paul will not inherit it and that whatever is left (upon Jane’s passing) will go to Ferdinand.
If Frank has a simple will that says Jane is to get everything, Jane could easily lose the inherited family property in a variety of ways, namely:
1. Poor money management
2. If Jane becomes disabled and Paul is appointed guardian by the court and he squanders the money, or commingling of funds with Paul
3. If Jane and Paul divorce and the court rules Paul is entitled to half of Jane’s assets (including the family property Frank left to Jane)
4. If Jane is sued for medical malpractice and the claimants recover some or all of Jane’s assets (including the family property Frank left to Jane)
If, however, Frank left his assets through a trust (to avoid probate) in a “spendthrift trust” (to protect the assets) for Jane’s benefit, with Ferdinand as a remainder beneficiary (to make sure the assets stay in the bloodline), 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 Jane became disabled, Paul would not be able to squander that money. If Jane and Paul divorced, Paul would not share in the assets Frank left to Jane. They would be protected because they were left to Jane in a trust for her benefit with a clause that directs Jane’s creditors shall not be entitled to Jane’s trust finds.
Also, if Jane were exposed for medical malpractice, the funds Frank leaves to Jane will be protected.
Our society is litigious. Fifty percent of marriages end in divorce. Leaving assets “in trust” instead of outright can provide you with the peace of mind you deserve. It can protect your family and keep your family property in your bloodline.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com