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Protecting your inheritance from creditors
If you're a young physician with affluent parents but few assets of your own, the most useful trust for you is likely to be one your
parents set up to shelter your inheritance.
Tell them you'd like your inheritance in the form of a spendthrift trust, suggests Denver estate-planning attorney Richard W.
Duff.
In most states, such a trust can protect the bulk of your inheritance from creditors' claims, though creditors can still seize
income you receive from the trust.
You can protect the income, too, if you give the trustees the power to use it for your benefit—for instance, they could
directly pay your mortgage, electric, and phone bills. Alternatively, you could have your parents assign the income to a
separate trust for your children. As the name implies, these were originally set up to give the trustee enough power to prevent a spendthrift child from squandering his inheritance. The more discretionary power you give the trustee when designing this trust, the greater the asset protection. These trusts allow some flexibility, though, so it's best to work with your parents and financial planners to make sure you achieve a workable balance between access and asset protection. |
While it may seem awkward to broach the subject of your inheritance with your parents, ask them whether they'd be willing to have a
family meeting to discuss it, says Duff. Do it while they're both in good health. Explain how a trust will help keep the money in
the family, in the event someone sues you or them. Since few parents would relish seeing their hard-earned dollars end up in a
stranger's hands, they may be more amenable to talking about this than you think.
If they balk at the cost, offer to pay the planning fees yourself, or divvy the fee among your siblings.
Protecting your own
If you've already amassed considerable funds on your own—say, $500,000 in liquid assets or $1 million in net worth—you may want
to consider an asset-protection plan through a foreign or domestic trust. While certain new domestic trusts (such as the Alaska
trust, which we'll get to shortly) are less expensive—$6,000 to $12,000—foreign trusts have shown more clearly that they can
withstand legal challenges, says Duff. But you have to set them up well before there's even a hint of trouble. Otherwise, your
adversary will claim that you acted to circumvent the law.
Even meticulously crafted asset-protection plans can face legal challenges. If the planning was done right, however, the asset
owner usually prevails. In one such case attorney Barry Engel handled, a 60-year-old Ob/Gyn was unexpectedly named as a defendant
in a nuisance suit. After the claimant's attorney found out the physician had a foreign trust and lacked insurance, the claimant
agreed to a token settlement from him. If creditors are already after you, it's generally a bad idea to try to shift your assets offshore. Some individuals who've tried have ended up in jail. |
