This is an article from Amen, Gantner & Capriano (https://www.yourestatematters.com/.) in St. Louis, Missouri, that we thought others may find helpful.
You have worked hard all of your life, saved faithfully and invested prudently with the intention of being able to pass down a sizeable estate to your children and grandchildren at the end of your life. Understandably, you are wary of any threats to your plans. Unfortunately, you have recently realized that the biggest threat may come from inside the family in the form of your son-in-law. Your biggest fear is that he will end up with your assets after you are gone. The good news is that there are ways to protect your assets from your son-in-law and other similar threats. The key to protecting estate assets is to incorporate asset protection strategies and tools into your estate plan. Specifically, you may wish to discuss including an asset protection trust in your overall estate plan with your estate planning attorney.
Why You Need to Be Worried about Your Son-in-Law (and Other Similar Threats)
If you have already recognized that your son-in-law is a potential threat to your assets you are a step ahead of many people. All too often people go to great lengths to protect their assets from outside threats, yet fail to recognize the threats lurking within the family. Spouses, however, are often the biggest potential threat of all to the future of your assets. Why? Sometimes an example serves as the best answer, therefore, by way of illustration, let’s consider the following scenario:
You and your husband have three children: Tim, Mary, and John. All three are adults with families of their own now. Mary’s husband is Alan. Although you have tried, you have never particularly cared for Alan, due in large part to the fact that you feel he has little ambition and lacks a sense of responsibility. Your husband eventually passes away and you follow a few years later, leaving behind an estate valued at approximately $3 million. According to the terms of your estate plan, your estate assets are to be sold and the proceeds split evenly between your three children, giving Tim, Mary, and John each $1 million. Not long after the estate is settled, Mary and Alan decide to divorce. Unfortunately, Mary made the mistake of “co-mingling” her inheritance, effectively converting her $1 million in separate assets to marital assets. As marital assets, the $1 million is subject to division between Mary and Alan in the divorce. Ultimately, Alan ends up with half of Mary’s original inheritance, or $500,000 of your assets.
Not only could this happen to you, but it does happen all the time as a result of inadequate or non-existent estate planning.
How Can You Protect Your Assets?
Anytime assets are directly gifted to a beneficiary in an estate plan or pursuant to intestate succession laws when no estate plan was left behind, those assets become vulnerable to creditors, spouses, and even spendthrift beneficiaries. The best way to protect them, while still providing for the beneficiaries, is to utilize available asset protection tools that avoid direct gifts. An asset protection trust, for example, would likely have prevented the outcome above, while still providing financial security for Mary and her children.
An asset protection trust is an irrevocable living trust. Because the trust is irrevocable, assets transferred into the trust become property of the trust, meaning you no longer have an ownership interest in the trust nor do the beneficiaries of the trust. The terms of the trust may call for regular distributions to beneficiaries; however, because the beneficiary cannot withdraw the principle held by the trust, the law does not consider the beneficiary to have an ownership interest in the trust. Therefore, in the event of a divorce, the trust assets are not considered part of the beneficiary’s marital property or part of the beneficiary’s estate for purposes of bankruptcy proceedings or other claims by creditors. An asset protection trust can even protect a beneficiary from his/her own spendthrift tendencies.
We take time to understand your goals and explain your options in plain English. Whether you need a comprehensive estate plan or guidance for your business, we make the process clear and stress-free. You tell us what you want; we create a plan that protects your wishes and your assets.
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