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Timing and Effective Asset Protection


Asset protection is not something most people generally think about until a problem arises. The problem with this approach, though, is that once claims are made against a company or individual, the options for limiting exposure are quite constrained, and the financial consequences dire. Irrevocable trusts are one method of protecting assets from lawsuits or other types of creditor claims (living or revocable trusts do not offer the same protection), but it is important that the timing is correct to avoid the possibility of challenges to the validity of the transfer to the trust. Trusts provide a lot of benefits for estate planning and asset protection purposes, but they can be challenged by beneficiaries, and terminated by courts. Former football player O.J. Simpson is facing $58 million in judgments from civil lawsuits connected with the murders of Nicole Brown Simpson and Ronald Goldman, and could face further lawsuits if he attempts to use a trust to shield his assets from paying this claim. This situation is one example of grounds to challenge the validity of using an irrevocable trust, and a discussion of when a judge could consider breaking a trust, as well as some alternative options for protecting assets from creditor claims, will follow below.

Terminating a Trust

Unlike living trusts, irrevocable trusts are created solely to serve the beneficiaries, and as such, modifying or terminating the terms of the trust’s operations is not necessarily easy, and often cannot be accomplished without court intervention. Though a method for terminating some irrevocable trusts without court involvement does exist, it requires the consent of the trustee and all qualified beneficiaries, a bar that is understandably hard to meet in many cases. If, on the other hand, a qualified beneficiary or trustee petitions for partial or whole termination, a court may grant it if one of the following circumstances are proven:

  • the purpose of trust was fulfilled, or from the opposing end, the trust has become wasteful, illegal, impossible or impractical to fulfill;
  • a material purpose of the trust no longer exists;
  • circumstances not anticipated by the creator will cause the defeat or substantial impairment of the trust if the trustee attempts to fulfill the terms.

In addition, fraud, duress or undue influence are also grounds to demand termination. This type of allegation is often leveled if a person is suspected of creating a trust to avoid legal obligations, and the more control the creators retain over the management of the trust, the more likely these types of assertions would be made. Note that if a trust is terminated, trust assets may be distributed under intestate succession rules, essentially as if the creator left no estate plan whatsoever, which is certainly not the desired outcome. Consequently, if creditor claims are a concern, and pending or past legal actions exist, other asset protection methods may be more beneficial. However, the best way to guard against this possibility is to establish an estate plan before creditor claims arise, including concerns about qualifying for Medicaid and later efforts by Medicaid to recover their expenditures. An experienced estate plan and asset protection attorney can advise on the best options for a particular situation.

Other Asset Protection Options

One basic and easy method of protecting assets for married couples is to own property as a tenancy by the entirety. This method allows surviving spouses to take ownership of any property, once the other spouse dies, without the need for probate. Further, creditors cannot touch these assets unless both spouses are liable. Thus, if a creditor has a claim against just one person, the property is safe from judgment.  Additional estate planning is likely necessary to avoid attempts by the State to recover Medicaid benefits once the covered spouse is deceased. Another reason to consult with an estate attorney sooner rather than later.

Get Legal Advice

Attorney William Rambaum understands how important protecting your financial legacy is for the future of your family. His law firm works to create an estate and asset protection plan that best serves your goals and the needs of your family. Contact the Oldsmar office today to schedule an appointment and get the help you deserve.



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