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Common threats to your assets include divorce, economic downturn, and failed business ventures as well as the impact that federal and/or state gift and estate taxes could have on your estate assets. Threats you may not have considered include the divorce of a beneficiary, spendthrift beneficiaries, and the high cost of long-term care. The good news is that estate planning tools and strategies can help you protect your assets from all these threats.
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The key to avoiding (or diminishing) estate taxes is to decrease your taxable estate. A popular way to do that is to make lifetime gifts. One commonly used tool used to make those gifts is the annual exclusion. This tool allows you to make gifts valued at up to $16,000 ($32,000 if you gift-split with a spouse) to an unlimited number of beneficiaries each year tax-free. Gifts made using the annual exclusion do not count toward your lifetime exemption.
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Certain types of joint ownership protect each owner from claims or liens of the other owner(s). With other types of joint ownership, however, your interest in the property could be at risk because of a lien or claim filed against the co-owner(s). Another common strategy is to transfer assets into an irrevocable trust. Once the assets are transferred, they are legally owned by the trust and out of the reach of most creditors and third parties.
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If a beneficiary has a history of addiction, mental illness, or mismanaging money, gifting assets in a trust that includes a spendthrift provision is an excellent way to protect those assets. The terms of the trust can also be used to determine how the assets can be used by the beneficiary. Appointing the right Trustee further serves to protect the assets from loss or misuse by the beneficiary.
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Entering into a pre-nuptial agreement prior to the marriage can protect assets from the division of assets required should the marriage end in divorce. One thing you also need to avoid is “co-mingling” assets during the marriage which turns your separate property into marital property.
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If you wish to make gifts to an adult child, one way to avoid the possibility of those assets being lost in a divorce is to use a trust to gift those assets. The assets legally belong to the trust until they are distributed to your child, meaning they will not be subject to the division of assets in the event of divorce.
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At an average yearly cost of over $100,000 per year nationwide (and considerably higher in California), the cost of long-term care can threaten a retirement nest egg. Medicaid planning is the key to avoiding the threat posed by the high cost of long-term care. As part of your Medicaid planning component, you may create a special type of irrevocable trust known as a Medicaid trust. This trust will protect your assets and ensure that you qualify for Medicaid if you need it in the future.
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Contact Us
For additional information relating to business succession planning, contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.
