(858) 432-3923 tara@cheeverlaw.com
Estate Planning Best Practices Gleaned From Famous Celebrity Deaths

Estate Planning Best Practices Gleaned From Famous Celebrity Deaths

Discussing death can be awkward, and many people would prefer just to ignore estate planning all together. However, ignoring—or even putting off—such planning can be a huge mistake, as these celebrity stories will highlight.

The next time one of your relatives tells you they don’t want to talk about estate planning, share these famous celebrities’ stories to get the conversation started. Such cautionary tales offer first-hand evidence of just how critical it is to engage in estate planning, even if it’s uncomfortable.

The Marley Family Battle
You would think that with millions of dollars in assets—including royalties offering revenue for the indefinite future—at stake, more famous musicians would at least have a will in place. But sadly, you’d be wrong. Legendary stars like Bob Marley, Prince, and Jimi Hendrix failed to write down their wishes on paper at all.

Not having an estate plan can be a nightmare for your surviving family. Indeed, Marley’s heirs are still battling one another in court three decades later. If you do nothing else before you die, at least be courteous enough to your loved one’s to document your wishes and keep them out of court and out of conflict.

Paul Walker Died Fast and Furious at Just 40
While Fast and Furious actor Paul Walker was just 40 when he died in a tragic car accident, he had enough forethought to implement some basic estate planning. His will left his $25 million estate to his teenage daughter in a trust and appointed his mother as her legal guardian until 18.

But isn’t 18 far too young for a child to receive an inheritance of any size? Walker would have been far better advised to leave his assets in an ongoing trust, with financial education built in to give his daughter her best shot at a life well lived, even without him in the picture.

Most inheritors, like lottery winners, are not properly educated about what to do after receiving an inheritance, so they often lose their inheritance within just a few years, even when it’s millions.

Indeed, none of us has any clue when we’ll die, only that it will happen, so no matter how young you are or how much money you have—and especially if you have any children—don’t put off estate planning for another day. You truly never know when it’ll be needed.

Heath Ledger Didn’t Update His Estate Planning
Even though actor Heath Ledger created a will shortly after becoming famous, he failed to update it for more than five years. The will left his entire fortune to his parents and sister, so when he died unexpectedly in 2008, his young daughter received nothing, as she hadn’t been added to the will. Fortunately, his parents made sure their granddaughter was provided for, but that might not always be the case.

Creating an estate planning strategy is just the start—be sure to regularly update your documents, especially following births, deaths, divorces, new marriages, acquiring new assets, or retiring. Many estate plans fail because most lawyers don’t have built-in systems for updating your estate plans, but we do—mostly because we don’t want this to happen to your family.

Paul Newman Cut Out His Daughters Too
Though it’s a good idea to regularly update your estate plan, be sure your heirs know exactly what your intentions are when making such updates, or your family might experience significant shock by not knowing why you did what you did.

The final update to Paul Newman’s will, which was made just a few months before his death in 2008, left his daughters with no ownership or control of Newman’s Own Foundation, his legendary charity associated with the Newman’s Own food brand. Prior versions of Newman’s will— and indeed his own personal assurances to his family—indicated they’d have membership on the foundation’s board following his death.

Instead, the final version of his will left control of the foundation to his business partner Robert Forrester. Some allege that during his final months, when Newman was mentally unstable, he was secretly persuaded to change his estate plan to leave control of the Newman’s Own brand and foundation to Forrester. Newman’s daughters are currently fighting Forrester in court over the rights they believe they’re entitled to receive.

While changes to your estate plan may seem perfectly clear to you, make sure your family is on the same page by clearly communicating your intentions. In fact, if you are making significant changes to your plan, and your children are adults, we often recommend a full family meeting to go over everything with all impacted parties, and we often facilitate such meetings for our clients.

Muhammad Ali Made His Wishes Clear
Boxing great Muhammad Ali wanted multi-day festivities to be held in his honor, including a large festival, an Islamic funeral, and a dazzling public memorial at the KFC headquarters in Louisville, KY. Given such elaborate plans, he worked with his lawyers for years, ensuring his wishes would be properly carried out.

While you probably won’t need a multi-day festivity to celebrate your life, you may have wishes regarding how your life should be memorialized when you pass or how your care should be handled if you’re incapacitated. If you eat a special diet or want certain friends by your side while incapacitated, you have to make these wishes clearly known in writing or they very well might not happen. At the same time, you should spell out exactly how you want your remains cared for and what kind of memorial service, if any, you prefer.

As your Personal Family Lawyer®, we can help ensure your final wishes are carried out exactly how you want. But more importantly, we’ll help protect your family and keep them out of conflict and out of court in the event of your death or incapacitation. With a Personal Family Lawyer® on your side, you’ll have access to the exact same estate planning strategies and protections that A-List celebrities use, so don’t wait another day—contact us now to get started!

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

Sign up for the Cheever Law Newsletter

Are Payable-On-Death Accounts Right For You?

Are Payable-On-Death Accounts Right For You?

A payable-on-death account, also called a POD account, is a common way to keep bank and investment accounts out of probate, the court-supervised process that oversees distributing a deceased person’s property. Most people want to avoid their estate going through probate because their heirs will receive the inheritance faster, privately, and at lower cost.

Is a POD account an appropriate solution for your needs? Let’s examine what POD accounts do and how they fit into the overall picture.

POD Accounts: The Nuts and Bolts

A POD designation can be set up for savings, checking, certificates of deposit, U.S. savings bonds, and investment accounts. Upon the death of the account holder, the funds in the account pass directly to the named beneficiary.

Setting up a POD account is usually very easy. Typically, there’s a form you have to complete and sign to select your beneficiary or beneficiaries. Additionally, you can change beneficiaries whenever you like or name several beneficiaries (allowing them to split the money).

After the death of the POD account holder, the beneficiary can claim the money in a fairly simple process. Often, the beneficiary will need to show ID, provide a copy of the death certificate, and complete some forms provided by the financial institution.

Some Pros and Cons

So, POD sounds great because they are easy. But, there can be significant problems using this as the primary tool for passing along what you’ve worked to build.

What if a beneficiary predeceases you? If you do not name new ones before you die, then your estate is back to probate, thus negating the primary advantage of establishing the POD account in the first place!

What if the beneficiary is in the middle of a bankruptcy, divorce, or lawsuit? Because a POD account transfers the money to the beneficiary without any protection, your beneficiary may lose his or her entire inheritance simply because the death of the POD account owner occurred at the “wrong” time.

What if you are in a car crash and rendered legally incapacitated and unable to make decisions? The named beneficiary cannot access funds to provide for your needs. POD accounts only function at death. They provide no protection in the event of your incapacitation.

Trusts: A Comprehensive Solution

Here’s a comprehensive solution: establish a revocable living trust to hold your accounts. Just like a POD account, a funded trust avoids probate and is private. But, unlike a POD account, it can incorporate alternate beneficiaries, so your assets avoid court even if someone predeceases you. You can also provide long-term asset protection for your beneficiaries, protecting them against lawsuits, judgments, divorce, and bankruptcy courts. If you become incapacitated due to an accident or illness, the successor trustee can use the assets in your trust to pay for your care. Trusts provide all the benefits and peace of mind of a POD account without any of the downsides.

Remember: Estate Planning Tools are Context Dependent

Rather than pick tools out of a hat, you first need clarity on the big picture. What are your goals and priorities? What challenges do you face now—or do you anticipate confronting? Whom do you want to protect? What kind of legacy do you hope to leave?

I can organize your thinking and help you select appropriate planning tools from the arsenal. Want to discuss POD accounts, living trusts, or just your future in general? Please call or email me to set up a private appointment.

This blog is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

Sign up for the Cheever Law Newsletter

 

Business Conflict: Tips for Settling Business Disputes Part 2

Business Conflict: Tips for Settling Business Disputes Part 2

In part 1, I discussed the importance of knowing how to negotiate business deals and mitigate conflict whenever possible. Besides being a financial drain, business disputes can also create conflicts that require precious time and energy to resolve. Setting clear boundaries and realistic expectations when making professional agreements is essential in setting yourself up for positive outcomes.

Although avoiding conflict is preferred in professional matters, it is imperative to be prepared to handle business disputes properly when the need arises. Following these valuable tips will increase your chances of a positive outcome when business disputes must be settled.

Clarify the Actual Dispute: Ensure you understand what the desired outcome the other party seeks for resolution. It is equally important to clarify your own desired outcome. It can be challenging to see what’s actually going on when emotions are high. Speak with a trusted advisor to help you get clarity.

Offers Without Prejudice: Once you are in the dispute resolution process, be mindful when making offers for resolution. Ensure that you state that your offer is “without prejudice” and with no admission of guilt, so that if you do end up having to go to court, the offer cannot prejudice your case.

Use Alternative Dispute Resolution Models: Going to court is a lose/lose scenario for everyone involved. Be sure you have mediation and arbitration provisions built into every agreement you sign. Resolve matters outside of court, whenever possible.

Don’t Rely Solely on Your Legal Rights: If you want to avoid going to court—and it’s usually in your best interest to do so— put a good faith effort into finding a mutually beneficial solution on which to agree while still invoking your rights. I can help you with that as we focus on finding resolve in every conflict, by seeking to identify where the respective parties’ needs can be met and matched up as part of your conflict resolution process.

Watch Your Wording: Settlement offers can be complicated. The way an agreement is worded or structured can affect the outcome, especially if that outcome is a financial judgment. Make sure you have a thorough understanding of the terms and conditions in any settlement offer. And never make a settlement offer without having me strategize and review the wording with you first.

Most importantly, get legal advice from a dedicated and trusted business lawyer. A lawyer can help you avoid all of the above mistakes and will protect your best interests during settlement negotiations.

This article is a service of Tara Cheever, Family Business Lawyer®. I offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. I also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call me today to schedule.

Sign up for the Cheever Law Newsletter

How A Living Trust Helps Your Family

How A Living Trust Helps Your Family

There are several parts to an estate plan, one of them being a living trust. Common factors that prompt someone to create a trust include privacy, tax benefits, avoiding probate, and caring for family members with special needs. Estate planning also lets you dictate how your assets will pass on to future generations after your death.

Avoiding Probate

One of the primary reasons for creating an estate plan is to avoid probate. Unlike a will, a fully funded living trust will avoid probate, typically a lengthy and costly court-supervised process. Probate includes locating and determining the value of the deceased’s assets, paying off any outstanding bills and taxes, and then distributing the remaining value of the estate to the deceased’s rightful beneficiaries or heirs. Avoiding probate is often a top reason for estate planning, and there is no surprise as to why. First, probate can be a costly way to transfer your assets upon death. Second, it is very time-consuming for your family. It can take at least nine months (or even longer) to complete the probate process. Complications, such as a contested will or an inability to find clear records of all of the deceased’s assets and debts, can extend this timeline. Finally, probate proceedings are a matter of public record so when your estate goes through this process, there is no privacy.

Reducing Taxes

While a living trust can help you avoid probate, it can also provide you with tax savings, especially if your estate is subject to death taxes (also known as estate and gift taxes). Of course, there are many types of trusts. One way to think about the variety is to consider a toolbox. For example, there are numerous kinds of screwdrivers, hammers, power tools, and so on. Each tool has an intended use. Trusts are no different. When you work with me, I’ll make sure to align the type of trust with the tax-saving needs and other goals of your family.

Seek Professional Help

It is important to understand that a trust only controls assets that are in the trust. In other words, you must place these assets in the trust – commonly referred to as “funding” the trust. Moreover, because our lives are always changing (marriage, childbirth, home purchase, etc.) and so are tax laws, it is essential to continually update and monitor the funding of your trust over your lifetime. For these reasons, you will want to work closely with me, your Family Business Lawyer® to make sure your assets are properly aligned with your trust. This will not only help you get organized, but it will also make things easier for your heirs when you pass away. You don’t have to go it alone. I am here to help you and your family.

This blog is a service of Tara Cheever, Family Business Lawyer®. I don’t just draft documents, I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this blog to find out how to get this $750 session at no charge.

Sign up for the Cheever Law Newsletter

The Perils of Joint Property

The Perils of Joint Property

People often set up bank accounts or real estate so that they own it jointly with a spouse or other family member. The appeal of joint tenancy is that when one owner dies, the other will automatically inherit the property without it having to go through probate. Joint property is all perceived to be easy to setup since it can be done at the bank when opening an account or title company when buying real estate.

That’s all well and good, but joint ownership can also cause unintended consequences and complications. And it’s worth considering some of these, before deciding that joint ownership is the best way to pass on assets to your heirs.

So let’s explore some of the common problems that can arise.

The other owner’s debts become your problem.

Any debt or obligation incurred by the other owner could affect you. If the joint owner files bankruptcy, has a tax lien, or has a judgment against them, it could cause you to end up with a new co-owner – your old co-owner’s creditors! For example, if you add your adult child to the deed on your home, and he has debt you don’t know about, your property could be seized to collect that debt. Although “your” equity of the property won’t necessarily be taken, that’s little relief when the house you live in is put up on the auction block!

Your property could end up belonging to someone you don’t intend.

Some of the most difficult situations come from blended families. If you own your property jointly with your spouse and you die, your spouse gets the property. On the surface, that may seem like what you intended, but what if your surviving spouse remarries? Your home could become shared between your spouse and her second spouse. And this gets especially complicated if there are children involved: Your property could conceivably go to children of the second marriage, rather than to your own.

You could accidentally disinherit family members.

If you designate someone as a joint owner and you die, you can’t control what she does with your property after your death. Perhaps you and an adult child co-owned a business. You may state in your will that the business should be equally shared with your spouse or divided between all of your kids; however, ownership goes to the survivor – regardless of what you put in your will.

You could have difficulty selling or refinancing your home.

All joint owners must sign off on a property sale. Depending on whether the other joint owners agree, you could end up at a standstill from the sales perspective. That is unless you’re willing to take the joint owner to court to force a sale of the property. (No one wants to sue their family members, not to mention the cost of the lawsuit.)

And what if your co-owner somehow becomes incapacitated, through accident or illness? In that case, you may have to petition a court to appoint a guardian or conservator to represent the co-owner’s interest in the sale. While you and your co-owner always worked together, an appointed guardian may see his responsibility as protecting the other owner’s interest–which might mean going against you.

You might trigger unnecessary capital gains taxes.

When you sell a home for more than you paid for it, you usually pay capital gains taxes–based on the increase in value. Therefore, if you make an adult child a co-owner of your property, and you sell the property, you’re both responsible for the taxes. Your adult child may not be able to afford a tax bill based on decades of appreciation.

On the other hand, heirs only pay capital gains taxes based on the increase in value from when they inherited the asset, not from the day you first acquired it. So often, while people worry about estate taxes, in this case–inheriting a property (rather than jointly owning it) could save your heirs a fortune in income tax. And with today’s generous $5.49 million estate tax exemption, most of us don’t have to worry about the estate tax (but the income tax and capital gains tax hits almost everyone).

You could cause your unmarried partner to have to pay a gift tax.

If you buy property and place it in joint tenancy with an unmarried partner, the IRS will consider that to be a taxable gift to your partner. This can create needless paperwork and taxes.

So what can you do? These decisions are too important and complex to be left to chance.  Contact me, a Family Business Lawyer like myself who specializes in estate planning.  I will help you decide the best way to manage your property to meet your needs and goals.

I can assist you in planning to reduce estate taxes, avoid potential legal pitfalls, and set up a trust to protect your loved ones. I understand not only the legal issues but the complex layers of relationships involved in estate planning. I’ll listen to your concerns and help you develop a plan that gives you peace of mind while achieving all of your goals you have for your family. Contact me and mention this blog article and I can share with you how to obtain a Life & Legacy Planning Session valued at $750 free of charge.

Sign up for the Cheever Law Newsletter

How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

Parents who develop an estate plan often do so to provide for their heirs financially. Many want to make sure hard-earned assets, family heirlooms, or closely held businesses stay within the family. Indeed, a common question is what cost effective options are available to protect one’s child’s inheritance from a spouse in the event of untrustworthiness or divorce. Thankfully, there are many ways to structure your child’s inheritance to help ensure it will remain in the family for future generations. Let’s look at a few of the options now.

Create a Trust

A trust involves three parties: (1) the person creating the trust (you might see this written as the “settlor,” “trustmaker,” or “grantor.”), (2) the person or entity holding the trust property for the benefit of the beneficiary, known as the “trustee”, and (3) the person(s) that benefit from the creation of the trust, known as the “beneficiaries.” Choosing a trustee who is independent can be a great way to eliminate any arguments that one beneficiary has more control to receive assets than what is actually provided in the trust documents than other beneficiaries, a helpful situation when you have an untrustworthy son- or daughter-in-law.

A lifetime trust is a type of trust that – as is evident from its name – lasts for the lifetime of the beneficiary and passes to the next generation of beneficiaries upon his or her death. It is commonly referred to as a “generation-skipping trust” and can also dramatically reduce or eliminate estate taxes. Assets in a lifetime trust are protected against commingling in the marriage and, therefore, cannot be pursued by a spouse. When assets are held by a trust your children – and, by extension, their spouses – cannot access these assets. Therefore, even in the event of a divorce, an ex-spouse cannot pursue them.

Use Prenuptial Agreements

In addition to creating a trust to protect your children’s inheritance from an untrustworthy spouse, your children can use a prenuptial agreement as a tool for asset protection. A prenuptial agreement is a document that details an agreement between your child and his or her spouse about the characterization of assets owned at the time of marriage and those earned after marriage. This legal document also provides the couple to agree upon the division of assets in the event there is a divorce. Because enforceability of prenuptial agreements varies by state, it is important to seek the advice of an attorney like myself before drafting and signing the contract. It may be an uncomfortable suggestion to bring up with your children, but it can be an incredible benefit in the event of a later divorce.

Other Planning Ideas

Beyond the actual legal tools, it is important for you to let your wishes be known to the family. One way to do this is to have a family discussion about your estate plan, explaining your intentions and reasons as to why it is set up in this manner. Additionally, using clear language in your estate planning documents that specify the intent or purpose in leaving the inheritance to benefit descendants – and not their spouses – can further solidify your wishes are followed. Finally, choosing a trustee that is independent will keep control over the funds in the trustee’s hands and not your child’s untrustworthy spouse. This will also allow you to manage or overcome any conflict that you may not have been expecting.

Bottom Line: Seek Out Estate Planning Help

If you wish to make sure your descendants receive a portion of your estate, discuss these intentions with your children and devise an estate plan that will guarantee this desire is fulfilled after your passing. Whether you have no estate plan, or have one that more than a few years old, sit down with me to create or update this plan to suit your goals.  Contact me for more information. I look forward to being of service to you!

 

Sign up for the Cheever Law Newsletter

“I Love You” Wills don’t really say “I Love You”

“I Love You” Wills don’t really say “I Love You”

Here, I’m going to discuss the drawbacks of “I love you” wills and introduce you to the estate planning move that’s actually going to ensure you do well by your loved ones: a lifetime beneficiary trust.

Rise above the misconceptions

No aspect of estate planning brings out as much emotional decision-making as the division of assets. Many people think, “I love you,” so I’ll leave you everything. In order to understand why “I love you” wills are, contrary to their name, not the most caring of estate planning gestures, it’s important to understand the risks of “I love you” wills.

Simply, an “I love you” will is a common name for a will in which the Grantor leaves all of his or her assets outright to his or her surviving spouse.  Many people consider or even use this approach because they think that leaving assets in trust shows they don’t trust their spouse. They may also think that a lack of federal estate taxes protects their assets from getting into the wrong hands. Sadly, many people also think that a will can be used to avoid probate. Unfortunately, none of these things are true.

Understand why “I love you” wills aren’t effective 

Let’s assume for a moment that you want to ensure your spouse gets access to your wealth upon your death.  If all you have completed is a simple “I Love You” will, your spouse (or whomever you designated as your Personal Representative) will have to open a court proceeding, called, Probate, in order to validate your will and transfer your assets.  Depending on how your will was written, your Personal Representative may have to post bond.  Obtaining a Bond requires credit worthiness so if your Personal Representative has a credit problem, the Court may not allow that person to act and will appoint a Professional Fiduciary to act as your Personal Representative if a successor was not named.  In such case, that Personal Representative may not act according to what you had ultimately wanted if it wasn’t spelled out.

Once your spouse receives the assets, which could take years in the Probate Court, the assets are distributed outright.  An outright distribution of assets has many disadvantages, which are listed below.  With your spouse holding all of the assets outright, his/her estate plan will eventually control the distribution of whatever assets are left at her death – assuming proper estate planning was done, otherwise, an additional probate would be opened at his/her death.  If estate planning was completed, s/he has the right to alter his/her plan at any time and any verbal agreements that you two may have had are not enforceable and your wealth may end up in the hands of someone else, rather than your children or other beneficiaries.

Disadvantages of outright distributions include:

  • You could inadvertently disinherit your children. If you use an “I love you” will, your assets are now in your spouse’s hands for him/her to leave however s/he wants. For example, your spouse could leave the assets to his/her own kids, a charity, a lover, or a new spouse.  Likewise, assets left outright to children could be lost in a divorce.
  • Basic planning with outright inheritance sets your heirs up for asset protection issues. Once your assets are owned outright by your beneficiaries through a direct inheritance, those assets can be seized by creditors, divorcing spouses, or lost in bankruptcy. Even if your estate is below the exemption for the death tax, predatory creditors and lawsuits could still spell trouble.
  • These wills still have to go through probate. Surviving spouses do not receive an exemption from probate. Even a simple will still has to go through the process, which you may not be anticipating — especially if you had hoped to keep the details of the will private. If you end up in Probate, the matter becomes public record.  Trusts, however, don’t need to go through probate and all of your assets will pass according to the Trust as long as those assets are titled to your Trust.
  • An “I love you” will does not protect against guardianship or conservatorship court involvement for you or for your beneficiaries. For example, if you leave all of your assets to your spouse and s/he develops dementia, the entire estate (existing assets plus the inheritance s/he received from you) could be under the control of a guardianship or conservatorship court.
  • Basic plans pile more assets into survivors’ estates. Although portability between spouses can help, it still doesn’t prove useful with the generation-skipping transfer tax (GSTT). Portability isn’t available for non-spouse beneficiaries. While at this point in time, having a taxable estate affect a very narrow group of people with very high net worth; however, we don’t know yet what will happen with tax policy under the new Trump presidency. In a changing tax policy landscape, keeping yourself as informed as possible is an important tactic for ongoing success.

Explore lifetime beneficiary directed trusts

Comprehensive, trust-based estate planning with lifetime beneficiary trusts is a better option than outright inheritance for surviving spouses, children, grandchildren, or other beneficiaries. If you leave your assets in lifetime beneficiary trusts, you retain control over where assets end up in the long run. Plus, your beneficiaries obtain robust asset protection features that can keep wealth safe from courts, creditors, and divorcing spouses. Your family’s private information can stay out of public record. You can also take advantage of more sophisticated tax planning than you can with a basic will or trust with outright distributions.

With proper planning now, you can focus on enjoying your life without worry about what could happen in the future.  Now that’s something to love and truly expresses “I love you” to your beneficiaries.  Feel free to contact me and I can share some stories about people who neglected to plan and you can let me know if that is something that you want your family to experience.  I look forward to working for your best interests now as well as down the road.

 

Sign up for the Cheever Law Newsletter

How You Can Build an Estate Plan that Includes Asset Protection

How You Can Build an Estate Plan that Includes Asset Protection

Yes, estate planning has to do with the way a person’s assets will be distributed upon their death; however, that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

Asset protection helps protect assets in a legal manner without engaging in the illegal acts of concealment, contempt, fraudulent transfer, tax evasion or bankruptcy fraud. One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce – at that point, it is too late. The only way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass.

There are two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgment. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to seek advice from your estate planning attorney.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for “ascertainable standards” distributions. While all of this may sound complex, I am here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential misconceptions, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. As a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. If you experience an unexpected illness or even a large-scale economic recession, you could result in bankruptcy.

Bankruptcy asset protection strategy: Asset protection trusts

Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

 

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

 Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect assets from a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

 

Judgment

When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, including your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

 These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give me a call at 858-432-3923 today to discuss your estate plan’s asset protection strategies.

 

Sign up for the Cheever Law Newsletter