When your heirs receive their inheritance, will the gift be vulnerable to attack in bankruptcy, divorce, or fortune-seeker’s lawsuit? It is not a myth: There really are people out there that wait for a person to inherit money, then prey on the beneficiary to gain control of your assets.
In most cases, when an estate is distributed, the heirs receive their gifts outright (directly to them in their name. This makes the assets vulnerable.
The good news is there is protection for your heirs if you use a Beneficiary Protection Trust. Instead of giving assets directly to heirs, the assets are put into a protective trust, then the trust is given to the heir. Because the trust is the legal owner, lawsuits against the heir cannot affect the trust.
The heir is also able to largely control distributions and exchange of assets in the trust, so there is no worry about the heir feeling they have no control. They are actually the trustee of their own trust, at least as long as there is no attack on the trust.
At the first sign of attack on the heir or the trust, the trust starts to lock down to preserve the assets. There are 3 successive levels of protection, depending on the severity of the attack.
Trust practitioners may be concerned that this type of trust can be defeated because of the doctrine of merger. When the trust beneficiary and the trustees are one and the same, the trust can be legally dissolved (Restatement 3d of Trusts §69). This problem is a concern when drafting these trusts, but as long as there is a contingent beneficiary (if the original heir dies) then the trust cannot be defeated by a merger.
These trusts are not used by many estate planners in Wisconsin yet. We have licensed the language developed by the large California firm who helped to bring this type of distribution into common use there.
If you are interested in developing an estate plan that protects your heirs without taking their control, submit our online form to request a consultation to discuss a trusted package including Beneficiary Protection Trust provisions.