How to Protect Your Children's Inheritance - Video Transcript
Today I’m going to be going over a short tip which you can use to protect your inheritance. It’s a very powerful tool. This tip turns a lousy estate planning trust into the equivalent of a $25,000 domestic asset protection trust.
All you have to do is have the courage to bug your parents about your inheritance. Let me explain it to you, this is a typical estate planning trust. Note, we’ve got this blue and red thing down here, that’s trust. It’s loaded up with money; the money sign just means it has assets that you’re going to inherit from your parents.
This is the type of trust that most people with any significant wealth will almost always do. Why, because it avoids probate. This is a revocable trust, it allows sophisticated tax planning but in most cases it has no asset protection benefits at all.
Normally the players in this are the settlor. That will be your mom and dad, usually and it can be somebody else but for this example I’m assuming your mom and dad are leaving you some money.
The trustee is also your mom and dad. It’s in the United States, its not protected, it’s easy for creditors of your mom and dad to get to. Down here is the beneficiary. This little blue guy is the beneficiary; this blue guy is you. The red guys are your mom and dad. For the purposes of this example that is very, very important.
Well let’s talk about it. This trust allows your mom and dad to save some taxes, it allows you to get their stuff. It allows you to get their stuff without going through a probate; nobody knows what you got. It’s a very wonderful tool but most estate planners just assume it has zero asset protection benefits. Let me explain why. There are two reasons why domestic revocable living trusts are nearly worthless for asset protection purposes. The first of these reasons is the self-settled trust rules. Well what are the self-settled trust rules? The self-settled rules mean that the granters of the self-settled asset protection trust cannot take advantage of the spend thrift provisions that are in almost all of those trusts.
The spendthrift provisions in each of those trusts are valid in all fifty states and what those spend thrift provisions do; there is several videos on this and there are several links below. But those provisions keep creditors of a beneficiary from forcing the trust disgorge assets.
I once had a situation in San Diego where a young man was the beneficiary of a very, very substantial trust. Many millions of dollars his dad had just died and he’s a very wealthy man. He’s going to receive some very substantial distributions from his trust.
He went down to the local Ferrari dealer and talks this sales person into giving him a car on a promise that he was going to buy it and that the trust was going to pay for it and he proved the assets in the trust and he proved that he could pay for it.
So they gave him the car. Well the trustee said no way am I spending my brother’s money to give you a four-hundred and some thousand dollar car. No way! The Ferrari dealer had to take it back, he could not force the trust to pay for this car that the beneficiary so ill advisedly purchased.
The self-settled trust rules only apply when you did not settle the trust. If you did settle the trust they are worthless.
That is why domestic asset protection is nearly always unreliable in the United States. The self-settled trust rules specifically state, in every state, except for the ones that had recently in acted self-settled trust action regulations that the creditors of a beneficiary of that trust cannot grab the trust assets. That’s the first one.
Second one, the full faith and credit clause of the constitution. This clause provides that all fifty states can enforce their judgments in all other states. All you have to do is reregister a judgment, you do not have to litigate it, and the states that have in acted domestic asset protection legislation forget the full faith and credit clause.
They pretend that it doesn’t exist, that’s why they’re all wrong and the domestic asset protection funds are absolutely malpractice to do right now because they’ve never been tested and if the US constitution trumps domestic state law; which it always does, then those domestic asset protection trust law are irrelevant. Watch my videos on that.
Well so what we have is a domestic trust that is of little or no effect to protect what’s in the trust. But there is one simple tip to turn that nearly worthless revocable living trust into an effective asset protection trust. What is it?
Well look at it, here we have the trust, here we have the mom and dad as trustees. Here we have the mom and dad as settlor, here we have you as the beneficiary. What you do is you do not take a distribution? What do most parents do? Oh hell! They spend hours talking to the estate planner about when the kids are going to get the money. Do they need to be twenty five? Do they need to be thirty?
Do they need to be thirty five? When are they going to become old enough to be millionaires? When won’t they snort it up their nose? Well guys, don’t go that route, leave the money in the trust. Don’t take the distribution instead you as the beneficiary here should become the trustee instead of taking a distribution.
Let’s see what that looks like. See, we’ve got you the beneficiary trading places with mom and dad. When mom and dad think that you’re smart enough to inherit $1,000,000 or 100,000,000 and they say that’s thirty five.
Well then when you’re thirty five they should resign as trustee and make you who is also the beneficiary the trustee. Then your trust will look like this. You will be the trustee; the beneficiaries will remain the same.
But look mom and dad, this little red thing, that’s mom and dad have been removed as trustees; they once were up here. They are no longer up there, instead they’re removed.
They are onlookers, they have given you the power to control the money that you inherited and that gives you the power to spend the money to do anything you want to with it.
But look, what you have here is a non-self-settled trust.
You are the beneficiary of a non-self-settled trust; that means that in all fifty states the spend thrift clauses apply. They will work because it’s a non-self-settled trust. So take this with you, I wouldn’t even have a job if everybody did this.
If you are going to inherit money and you convinced your parents to always make yourself the trustee rather than giving you the money out right so that you can put it into a trust and have a self-settled trust. That’s not good asset protection! It’s much better to say, you become the trustee, take over the management of your own money and you can do with it as you please.
But you still can hide behind the spend thrift provision and protect yourself from Ferrari dealers and other creditors. It’s really great; show it to your estate planner. It will not increase the cost, it’s essentially free and it turns a simple domestic estate planning trust into a powerful asset protection trust.
This free tip is my gift to you and I hope that your estate planners give you a break on your price, because they should. It’s that valuable. Thank you very much and I’ll see you soon.