by Gregory Aler
One of the main goals of every effective estate plan is to afford maximum protection to your assets and beneficiaries. It makes very little sense to spend an entire lifetime accumulating wealth unless you are going to take the appropriate measures to ensure that it is protected after you are gone. Effective estate planning protection is comprised of two main parts: (1) identifying the risks, dangers and avoidable costs to your estate and (2) implementing the appropriate level of security by using the right materials, tools and instruments to construct an “Estate Planning Vault” to shield and protect your assets. Dynasty Trusts are one of the most impressive and impenetrable instruments of the estate planning world. Simply put, a properly instituted Dynasty Trust is a Vault that can’t be cracked.
Why do I need estate planning protection?
The biggest concern for your A’s and B’s (assets and beneficiaries) are that they all need protection from the C’s, D’s and E’s (Creditors, Divorce and Estate Taxes). An estate is particularly vulnerable to the C’s, D’s and E’s prior to any Estate Planning (before your Vault has been constructed). Most people don’t think about doomsday scenarios, however, it is the job of every good estate planning attorney to raise these circumstances so that our clients can make informed and educated decisions. So what happens if you give all of your assets to your children or other beneficiaries when you are gone and then such child or other beneficiary (i) files for bankruptcy (ii) is sued after running a red light and hitting someone on a crosswalk, (iii) gets a divorce or (iv) is subject to any other claim or creditor during his/her lifetime? Unfortunately, the answer for all of the scenarios above is that without an effective estate plan, your child or other beneficiary could end up losing half or even all of their inheritance. In addition to the risks above, your estate is also subject to the risk of additional taxation.You most likely know that your estate will be subject to tax at your death, but what most people don’t consider is that this same money could be taxed again at the death of each and every one of your beneficiaries. Uncle Sam is basically double dipping into your estate and your beneficiaries’ inheritance indefinitely — unless you take measures to stop him. Effective Estate Planning minimizes tax exposure and maximizes tax savings by allowing you to DISINHERIT THE IRS.Now that we have highlighted the risks to your A’s and B’s, we are going to talk about how to build the proper Estate Planning Vault for maximum asset protection.
Building Your Vault
Wooden Vault – Our next estate planning approach is similar to the Cardboard Vault, however, instead of one distribution at you or your surviving spouse’s death, the distributions would be broken up and spaced out over the child’s lifetime (i.e. 1/3 at 25, 1/3 at 30 and 1/3 at 35). While this method alleviates the burden of passing a large one-time lump sum of money to your child who is not yet ready for such responsibility, it DOES NOT change the fact that after each distribution the money inherited by your child remains COMPLETELY vulnerable to the C’s, D’s and E’s.
Titanium Vault – Finally, the highest level of protection is achieved by utilizing a Dynasty Trust. This differs from the previous Cardboard Vault and Wooden Vault approaches previously discussed. Instead of passing your estate to your child via an outright distribution, a Dynasty Trust forms a separate trust to receive and hold your child’s inheritance distributions. Once created, your child will then have access to such trust throughout his/her lifetime. A Dynasty Trust allows your child’s inheritance to be successfully shielded and protected from the C’s, D’s and E’s so creditors, claimants, ex-spouses and Uncle Sam won’t have the combination to your child’s Vault.
The key is to be proactive TODAY versus TOMORROW. Effective estate planning constructs the proper tools, such as Dynasty Trusts and many other estate planning instruments, to ensure that your assets and legacy are protected and memorialized during your lifetime. As you can see above, Dynasty Trusts are the impenetrable Vaults of estate planning for good reason. They simply provide a level of protection that most estate planning tools simply can’t match. If you would like more information about Dynasty Trusts and/or estate planning information in general, please feel free to attend one of our many events or contact us to schedule a FREE consultation at one of our office locations – Dublin, Ohio (Columbus area), Atlanta, Georgia and Chicago, Illinois.
“A Lifetime Accumulating Wealth, An Afternoon Preserving It”
Greg is one of the founding members of AlerStallings LLC and his practice is focused on estate planning and elder law. He prides himself on providing big firm experience at boutique firm prices.