Estate Planning Advice: Asset and Family Protection – Part Two

INTRO: In Part One of this series, we talked about one of my clients who inquired about the international asset protection haven of the Cook Islands. Today we look at some of the best ways to protect your assets…in particular the “spendthrift” provision of a Revocable Living Trust.

I am often asked “What are the best ways to protect my assets?” Aside from these intriguing offshore asset protection strategies (and some developing domestic strategies in certain states), the starting point is to purchase appropriate insurance policies. These policies should have a broad scope of coverage and adequate limits. In most cases, they should be accompanied by personal and business umbrella policies to cost-effectively increase your liability limits. Unfortunately, insurance will never cover all risks, but it can reduce or eliminate a huge number of them.

Revocable Living Trusts are a wonderful tool in many respects. However, despite widespread misconception, they do not offer creditor protection to the settlors – people who establish the trust. An important silver lining is that Revocable Living Trusts can, if drafted properly, offer robust creditor protection for the settlor’s beneficiaries (loved ones, such as children or grandchildren) via a “spendthrift” provision. An appropriate spendthrift provision prevents or makes it extremely difficult for a judgment creditor of your loved one from being able to take any assets from your trust to satisfy a judgment against such loved one.

If you are particularly interested in controlling risks for your loved ones, you can provide extra creditor protection by retaining assets in trust for many years following your death, or even for the entire lifetime of your loved ones. Such an extended or lifetime trust has some disadvantages, but it’s definitely worth discussing the benefit of keeping trust assets largely out of reach of your loved ones’ creditors (including their spouses and/or future spouses) while allowing them to take and use distributions as needed.

For those who own investment real estate or a small business, it is generally best to form, own and operate these assets in a business entity, such as an LLC or Corporation. Properly formed, capitalized and operated business entities shield the owner’s personal assets from the potential judgments of creditors that arise out of or are related to one’s business or investment activity.

Irrevocable Trusts (as opposed to Revocable Living Trusts) are also compelling asset protection vehicles. They can offer dramatic benefits, such as potential federal estate tax savings. They involve some loss of control, are somewhat expensive to set up and can be complex. Nevertheless, for people with substantial wealth, the advantages often outweigh the disadvantages.

This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.

Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.

ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.