Estate planning is a complex and often over looked topic that most people do not want to think about, because it talks about death, theirs. There are many different facets that have to be considered. One overriding concern many people have is doing something with their assets so they reduce the amount of income tax that may be owed. This is an obvious area for expert advice. However, it is important to realize there are several other factors equally as important which have to be taken into account when organizing your estate. Sometimes an unexpected event can reveal an inherent weakness in a specific type of estate planning strategy.
Concerned about his wealth and the expected complications and delays in settling his estate, Simon sought legal expertise to include his assets in a revocable “living trust”. This form of trust frequently used to enable inheritance of family assets without the complicated process of probate. Simon thought he had protected his family’s inheritance as well as he could – he consulted with his lawyer and he agreed that it would make probate much easier.
Unfortunately, Simon was not the first to die. The tenant in a duplex, owned by Simon, was fatally injured when the wooden deck collapsed. His liability insurance only covered part of the settlement, so when Simon was sued by the family, he lost most of his assets.
Simon had mistakenly thought that a trust would provide enough protection, but found out the hard way that a “revocable” living trust is weak in this respect. Because it was setup as a “revocable trust”, it meant that he was able to dissolve it at any time, and therefore the court could force him to dissolve it to satisfy a judgment. In today’s litigious society, there are ways to title assets so that you are not subject to surrender in a lawsuit. Asset protection is an evolving art that basically involves separating control of the assets from your personal wishes. That which you cannot give, the law does not require you to give, and this is the principle behind many of these strategies, often involving offshore companies and irrevocable trusts.
The disposition of the assets of a trust is dependent on a trustee, and if worded correctly , you cannot personally be forced to hand over those assets to the court. Similarly, you may be deemed not to have overriding control over the operation of a suitability established company, so cannot be required to deliver those assets in response to a court’s judgment.
Depending on the amount of wealth at risk, there are increasing levels of complexity and strategies with interconnected trusts, companies and partnerships. Financial advisors who specialize in these issues general display the T.E.P. designation and keep up with current case law, as each year new judgments result in new interpretations of the law.
Dealing with these issues requires special knowledge. If someone is looking for the optimal solution, this isn’t a situation that can be properly handled without expert advice. Every case is different. Always consult with a lawyer who specializes in trusts. People who try to sell a packaged way of organizing an estate, particularly at informational seminars, will frequently do a disservice as generic solutions cannot fully accommodate individual circumstances.
Hiring professionals to organize your estate from all angles will more than pay for itself. – M Dumond
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