Incorporating Asset Protection Into Estate Planning: Yes, We Can Protect Our Children Even After We’re Gone

 In Legal & Financial

Incorporating Asset Protection Into Estate Planning: Yes, We Can Protect Our Children Even After We’re Gone

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I still remember how my mother would reflexively throw out her arm to stop me from careening through the windshield every time she hit the brakes on our family car. We have a natural instinct as parents to protect and safeguard our children, and as I’ve aged, I’ve learned those instincts continue long after the children have grown and gone out on their own. In the last several decades, we’ve developed carefully engineered car seats to protect our young children from harm, which are much more effective than Mom’s outstretched arm. In a similar respect, we’ve also figured out more effective methods of protecting our children from financial ruin, even after we’re long gone.

Why Is Asset Protection Important?

In today’s age of high divorce rates, lawsuits, and bankruptcies, there is an ever increasing chance that property you leave to a child could end up in the hands of his or her creditors or spouses in divorce. No one wants this to happen with their estate. Fortunately, there are relatively simple and cost-effective asset protection strategies that can be integrated into your estate plan to ensure your hard-earned money stays in your family.

We Can Create Asset Protection Trusts For Our Children

The best way to protect a beneficiary’s inheritance is with a trust. By holding a beneficiary’s share in a properly drafted trust, it is possible to give them the benefit of the assets without exposing them to the beneficiary’s creditors. Such trusts are often used when the beneficiary is disabled, a minor, a substance abuser, or financially irresponsible. These are referred to as spendthrift trusts.

We Can Create Asset Protection Trusts For Our Children

The best way to protect a beneficiarys inheritance is with a trust. By holding a beneficiarys share in a properly drafted trust, it is possible to give them the benefit of the assets without exposing them to the beneficiarys creditors. Such trusts are often used when the beneficiary is disabled, a minor, a substance abuser, or financially irresponsible. These are referred to as spendthrift trusts.

However, even financially responsible children can benefit from asset protection trusts, which can be setup in ways that do not restrict the childs access to the property but still protect it from creditors. Trusts can also be used to protect a vulnerable surviving spouse from predators or to protect a deceased spouses share of the estate if the surviving spouse remarries. 

Most people dont know about these asset protection strategies or how simple it is to incorporate them into a new or existing revocable living trust. While offshore and domestic asset protection trusts are commonly used by the wealthy to safeguard assets, you dont need to rush off to the Cook Islands to set up an extremely effective asset protection trust for your descendants. In fact, you can use the same revocable living trust you created for probate avoidance purposes to serve as a virtually impenetrable asset protection trust for your heirs after youre gone.

Your Revocable Living Trust Can Be Used As An Asset Protection Tool

This is how it works. After our death, instead of making outright distributions of our estate to our intended beneficiaries, we direct our successor trustee to retain those assets in trust, to be distributed according to our specific instructions. For those beneficiaries with spendthriftconcerns, we may direct the trustee to make distributions in a very conservative manner, with a focus on protecting the beneficiaries from themselves and others. For those beneficiaries who are more responsible and prudent, we may allow the trustee to be more liberal in making distributions. In fact, with a completely liberal standard, we can effectively give beneficiaries complete access to their trust funds while still maintaining asset protection.

A trustees discretionary standard, whether liberal or conservative, might also change as the beneficiary ages. For instance, a conservative discretionary standard may be used until they reach a certain age (e.g. 35) and then changed to a liberal standard.  

Heres the beauty of this type of planning: If the beneficiarys trust is properly drafted, every penny still sitting in that trust account when a creditor comes knocking, or a divorce or bankruptcy is filed, is fully protected  from the reach of the court in any legal proceeding. And the reason is very simple: Those trust assets still belong to your estate, even after youre gone, and the court has no power to levy your assets to pay off your childrens creditors or spouses.

As you can see, this type of asset protection plan has a great deal of flexibility and can provide your children and other descendants with some incredible benefits. If youre not eager to controlyour children after youre gone, dont worry. You can let them decide whether they want to take advantage of this asset protection or not. With a liberal discretionary plan, they can always request a distribution of all of the funds and terminate the trust. However, when educated about asset protection, most will see the benefits and appreciate the fact that you left them a means of safeguarding their assets thats more effective and comprehensive than any offshore trust.

Does Your Estate Plan Include Asset Protection For Your Children?

At the Crandall Law Group, we understand asset protection, and well include this in our discussion with you as we work shoulder to shoulder to design an estate plan that fits your unique needs and circumstances. To learn more about how to incorporate asset protection into your estate plan, contact us today for a complimentary consultation.

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