No one likes to think about the possibility of losing a lifetime of earnings through unfortunate events like divorce, spendthrift heirs, or litigation. However, ignoring these risks won’t prevent them. A recent article from Kiplinger, “Want Your Kids to Inherit? You Need an Asset Protection Plan, ” explains several asset protection strategies used to protect wealth from disappearing in nefarious ways.Beck, Lenox & Stolzer increasingly use these strategies for our clients.
Prenuptial agreements aren’t the most welcoming topic when your adult child announces their engagement. Still, this should be discussed and encouraged no matter how much you love your prospective new family member. A prenuptial agreement or prenup is a contract between two adults agreeing on how they will distribute assets in case of divorce. This legally binding document addresses assets, debts, spousal support, alimony, gifts and inheritances. It’s also helpful as a supporting document if one of the spouses should die unexpectedly. However, the couple should have a will, power of attorney and other estate planning documents created as soon as they are married.
Depending on the state, there may be laws concerning when the prenup is signed for it to be valid. Signing a prenup under duress could make it invalid, so this needs to be addressed in a timely manner.
Another option is to create a postnuptial agreement (postnup). Spouses may contractually agree to terms outlining the distribution of assets in the event of a divorce after the wedding.
Asset protection includes determining and formalizing how assets will be passed on to heirs. Parents should consider creating trusts as part of their estate plan. Trusts allow grantors (the person creating the trust) a much higher degree of control over who receives the assets in the trust and takes them out of the probate estate.
For example, the trust may call for a beneficiary to receive a portion of their inheritance at ages 30 and 40 and the balance at age 50. An heir with a drug dependency might be required to complete a rehabilitation program or maintain employment over a steady period of time before the trustee can distribute some or all of the assets in the trust.
If assets are left through a will, a number of vulnerabilities are created. First, they are part of the probate estate and subject to federal and state taxes. Second, the will becomes a public document when it goes through probate, so creditors can learn if someone is receiving an inheritance. Creditors may include ex-spouses, credit card companies and financial institutions. Among the asset protection strategies used to protect wealth is a Heritage Trust. This is a popular tool that Beck, Lenox & Stolzer uses to shield assets from creditors, bankruptcy court and in the event of a divorce.
An experienced estate planning attorney is familiar with the tools used to protect assets and ensure that they pass to the next generation according to your wishes. Protecting a lifetime of hard work is a worthy endeavor, creating a legacy and providing security for those you love. If you do not have asset protection in place for yourself, and you are not currently a client of ours, schedule a phone consultation and ask about a Heritage Trust.
Reference: Kiplinger (Nov. 9, 2024) “Want Your Kids to Inherit? You Need an Asset Protection Plan”
