Asset protection planning is part of many good estate plans. You can provide asset protection for the inheritance you leave to your spouse so it can’t be taken by a second spouse, bankruptcy, or lawsuit. Here is how to get asset protection and why you would want it.
How to get asset protection for your spouse
Instead of giving your spouse large outright gifts during your lifetime or upon your death, give your gifts in wrapped in the protective layer of a trust. By using this protective language and by having an independent trustee (or a co-trustee with your spouse) serve as trustee, your assets cannot be taken by a predator or incompetent second spouse or a creditor.
The second spouse
A second spouse (aka “Bob, the pool boy” or “Bambi, the Hooters waitress”) may or may not have ill intentions when it comes to the assets you’ve left for your spouse and children. Many intelligent spouses have made poor financial decisions when it comes to a second spouse, losing all of the assets to business failure, divorce, or spendthrift spending.
Even if all of your assets are not spent, if your spouse puts the assets in joint names with a second spouse (as is common with all married couples) and dies first, all of your assets will go to the second spouse and none of the assets will go to your children. Your children will actually be disinherited, albeit accidently.
If you give your gift to your spouse in trust, your assets cannot be taken from him or her in a subsequent divorce property distribution, bankruptcy, medical crisis, malpractice law suit, law suit stemming from a car accident, and the like. While most all of your spouse’s individually owned assets can be taken, the assets you give in trust (and that remain in trust) cannot be taken.
If you have questions about asset protection planning and protecting the assets you leave for your spouse, consult with a qualified estate planning attorney.