I am a physician and have inherited a fortune and planned to marry next year. Although there are no lawsuits pending, I am still worried about losing this inheritance to malpractice suits and/or a divorce in the future. I was advised to "give" the inheritance to my mother to set up a revocable trust, with me as the beneficiary. This would protect me better than a prenuptial agreement. This construction will also protect me against malpractice suits. Since I am the beneficial owner of the assets of the trust, I can invest the assets and withdraw as an owner. I will do these via my mother, to prevent damaging paper trails. In case of a divorce, my wife will not be able to claim the increase of the value of the assets in the Trust. Are there any pitfalls with this construction?
A trust is one option. As for specifically the best way to accomplish your goal, you should speak to an experienced estate planning attorney. If you mess up the formation and transfer or assets, the trust can be pierced.
On the divorce side, a pre-nuptial agreement would accomplish the same result.
If you are at a really high risk of malpractice, then off-shore trusts provide another layer of protection because if the trust is set up in the right countries, it is beyond the jurisdiction of the U.S. to actually get the assets. If the trust assets are in the U.S., then there is always a mechanism to pierce the trust depending on the circumstance. However, for 99.9% of people, an off-short trust is really not necessary.
As the other poster have suggested, you should see an estate planning lawyer. When you do, be sure to discuss fraudulent transfers. Essentially, the concern of fraudulent transfers is your transferring assets for less than fair value for the purpose of depriving creditors from reaching your assets. When there is a fraudulent transfer, the creditor can go after the recipient for the return of the transferred asset. If you'd like some recommendations, please contact me offline.
A revocable trust is not your best protection for the concerns you reference. Primarily because you have, by their very nature, the power to revoke the trust and a court of equity, such as a divorce court, may consider that to still be an asset completely under your control.
You want to consider some form of an irrevocable spendthrift trust which is a trust in which you, on the surface, surrender all control of the assets which cannot be used to satisfy creditors, such as a divorcing spouse.
However, if you reserve certain protections, such as the power to appoint and change the trustee, then you always have a trustee of your choice that you go to for distributions. In other words, you would still always be able to seek distributions from your irrevocable trust but a creditor or ex-spouse cannot attach it.
Transferring assets to family members for asset protection planning purposes is not a good idea at all. Any liability issue in which this family member may get involved could compromise your estate. From my perspective as an attorney that exclusively works in this specific area of the law, a sound and legitimate asset protection plan should be tax neutral and not compromise ownership or control.
If the total net worth you seek to protect is above the 500k benchmark, you should consider a planning that includes an exit strategy that, if necessary, allows you take the (ownership of) your asset out of reach of US courts. Given your profession and the fact that you just inherited a fortune and you plan to marry, you should definitely schedule a consultation with an attorney that has proven expertise in the area of asset protection planning.
When interviewing law firms, you want to ask the following questions:
1. Which % of your practice area is dedicated to asset protection planning?
2. What is the average net worth of your clients?
3. How much asset protection plans did you set up during the last year?
4. Does your plan include an exit strategy or do you go offshore right from the start? What are the tax consequences of the plan you recommend?
5. Does this plan compromise ownership or control?
6. How is your fee structure?
7. What is the ongoing support you provide and what is the fee structure for this support?
I certainly hope you weren't given this advice by an attorney. Suppose you give the money to our mother, and she puts it into a revocable trust. Then she looks away for a second while driving and slams her car into a school bus full of children, putting all of the money at risk to claims by those injured. There are ways to protect your assets (too involved to detail on Avvo), but they all will involve giving up some measure of control. As the saying goes, "You can't have your cake and eat it too." Spend some time with an estate planning attorney, outline your objectives, and ask for your alternatives.
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