You may think of trusts as estate-planning tools, i.e., vehicles for reducing taxes after your death. While trusts can certainly fill that role, they’re also useful for protecting assets, both now and later. After all, the better protected your assets are, the more you’ll have to pass on to loved ones.
Creditors, former business partners, ex-spouses, “spendthrift” children, and tax agencies can all pose risks. Certain kinds of trusts can help defend against asset-protection challenges.
Build a Fence
If you’re concerned about what will happen to your assets after they pass to the next generation, you may want to consider the defensive features of a “spendthrift” trust. Despite the name, a spendthrift trust does more than protect your heirs from themselves. It can protect your family’s assets against dishonest business partners and unscrupulous creditors. It also can protect loved ones in the event of relationship changes. For example, if your son divorces, his spouse generally won’t be able to take a share of the trust property in the divorce settlement.
Several trust types can be designated a spendthrift trust; you just need to add a spendthrift clause to the trust document. Such a clause restricts a beneficiary’s ability to assign or transfer his or her interests in the trust, and it restricts the rights of creditors to reach the trust assets, as allowed by law.
Trustees play a role in keeping your trust safe. If a trustee is required to make distributions for a beneficiary’s support, a court may rule that a creditor can reach trust assets to satisfy support-related debts. So, for increased protection, consider giving your trustee full discretion over whether and when to make distributions. You’ll need to balance the potentially competing objectives of having the access you want and preventing creditors and others from having access.
Make Asset Protection a Priority
If securing your assets is a priority — and it should be — consult with a Capell & Howard Estate Planning, Probate & Trust attorney about whether a trust can provide the protection you need. There may also be other ways to help shelter wealth, for example, maximizing your use of qualified retirement plans. Attorneys Debby Spain, Russ Russell, Caty Richardson, and Sarah Johnston are ready to help guide you through the process.