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Protect Your Assets From The Grave

Wed, Feb 08, 2017 at 11:15AM

Protect Your Assets From The Grave

A client says, “I want to leave everything to my daughter when I die, no strings attached. Oh, and if she dies, gets divorced or gets sued, I want it protected.” The client does not realize the request is contradictory. Unless specific language is added to a will or trust holding the assets in trust for the beneficiaries, the assets are distributed. Once distributed, the creator of the will or trust has no control. Can one protect assets beyond the grave? Yes.

The client could add a provision in the will or trust that maintains the assets in trust, rather than distributing them to the beneficiaries. When the creator of the will or trust dies, the special trust becomes active and continues according to its terms.

There are a number of choices about how distributions will be made. The client can provide that the trustee will distribute income, or income and principal, for education, health and living expenses, and perhaps will distribute all or large portions of principal as the beneficiaries reach certain ages, or on other conditions. It can provide for specific distributions instead of discretionary distributions. The discretion of the trustee should not be too open, and the beneficiary should not be the trustee. If the trust looks like it is actually available to the beneficiary without restriction, a creditor might challenge the protection.

Most trusts contain “spendthrift” provisions, which provide that a beneficiary cannot pledge trust assets, and a creditor of the beneficiary cannot access the assets. Florida law does not permit the grantor of a trust to obtain protection from the grantor’s own creditors.

Once a distribution is made to the beneficiary, it is no longer protected, and if a creditor takes the time and effort to continually monitor distributions, the creditor may be able to obtain distributed assets.

Thus, if it is important to protect assets from the grave, it can be done.

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