One of the issues that is often overlooked in the estate planning process is the protection of assets from third parties. Most of the effort in estate planning is around making sure that the right heir gets the right asset at the right time. What many of us do is forget to make sure that those assets are protected so that they are actually there when the time comes to pass them to the heirs. Let’s take a look at some of the basics around how to protect assets so that we actually have those assets to pass on.
How can Your Assets be Vulnerable?
One of the biggest ways that your assets could be vulnerable to a third party is through some sort of personal injury claim, as an estate planning attorney Leawood, KS trusts can explain. These arise in two major circumstances for most employed persons: First, someone comes onto your property and gets injured. Let’s assume that you have a great Independence Day celebration planned. Everyone is over and having a great time when someone falls off your deck and breaks their leg. Unfortunately, there are complications and the medical claims now exceed the limits from your homeowners’ policy. Second, you are in a car accident where the other party is substantially injured. Again, their injuries substantially exceed your automotive liability limits. They then look to you to make them whole for their injuries. This could include a lawsuit and them trying to attach any property that they can get their hands on.
Trusts – Protective Clauses
One of the most common techniques to protect assets is a trust. People have been using them for a long time to protect the assets of the grantor. Of course, one of the biggest keys to having a trust that fully protects the assets is to have a trust that is irrevocable. An irrevocable trust is one that cannot be changed by the Grantor after the trust is created. What the Grantor does is to create the trust and then give (or sell) the assets into the trust. Accordingly, the assets no longer belong to you (they belong to the trust) and would, therefore, not be available to satisfy any claim against you. You need to be sure that you do not keep any substantive control over the trust.
Trusts are also great vehicles to keep assets away from potential creditors of the beneficiaries of that same trust. If a beneficiary does not have access to the assets within the trust, and the language is property drafted, then the potential creditors cannot reach the assets that are within the trust. These clauses, commonly called anti-alienation provisions, keep creditors away from the assets. So, trusts are typically drafted to have several protective measures so that the beneficiary does not have access, which will severely limit (if not eliminate) any creditor from going after those assets within the trust. Some of the more common types of trusts that exist for asset protection purposes are support trusts, spendthrift trusts, blend trusts, and discretionary trusts.
Please note that there are claims that are able to pierce even the most bulletproof of trusts. Those claims include such things as claims by a child for support payments, some federal or state claims, etc.
Estate planning is about more than setting up the basic documents. One thing to think about is protecting assets from creditors, or potential creditors. These creditors can include such things as claimants from a car accident or other personal injury claim. There are certain trusts that can protect those assets from most of those claims.
This article was brought to you by The Eastman Law Firm.