A very important aspect of planning your estate should be creating a plan that will protect your children or other beneficiaries from creditors, lawsuits, and divorcing spouses after you are gone. This can be easily accomplished by setting up lifetime trusts for the benefit your beneficiaries instead of leaving your property outright, in stages, or at specific ages.
What is Asset Protection for Your Beneficiaries?
Asset protection for your beneficiaries involves keeping a beneficiary's inheritance safe from being taken by a creditor, by someone who wins a lawsuit against the beneficiary, or by a spouse who divorces the beneficiary. This is particularly important if the beneficiary is already in bankruptcy, involved in a lawsuit, or in the middle of a divorce at the time of your death.
How Can You Protect a Beneficiary's Inheritance?
In order to fully protect a beneficiary's inheritance, you will need to leave the beneficiary's share of your estate in a lifetime trust for the benefit of the beneficiary instead of leaving the property outright, in stages, or at specific ages.
But a word of caution - your attorney will need to be careful when drafting the actual language of the lifetime trust and you will need to be careful who you choose to serve as Trustee(s) of the beneficiary's trust because without the appropriate "buzz" words (such as health, education, maintenance), or by requiring mandatory distributions of trust income or principal to the beneficiary, or by naming the beneficiary as a Trustee, in some states the trust assets will lose their protected status.
What Should You Do?
If you are in the process of putting your estate plan together, then you will need to let your estate planning attorney know up front that asset protection for your beneficiaries should be built right into your plan.
On the other hand, if you already have an estate plan but have not considered all of the benefits of protecting your beneficiaries, then you will need to sit down with your estate planning attorney to revise and update your current plan to include asset protection through lifetime trusts.