With the increase in federal estate tax exemptions, and the elimination of the Kansas estate tax, estate tax planning is not a concern for most clients. One of the areas of concern that is replacing estate tax planning is asset protection planning, both for the client and the client’s beneficiaries. The Estate Planning Team develops asset protection plans for individuals that have high litigation risks (such as doctors, other professionals, and small business owners) that traditional exempt asset planning techniques with irrevocable trust planning to protect assets for transmittal to the next generation.
Generally, a person cannot irrevocably transfer assets to a trust, retain an interest in the assets, and prevent his or her creditors from reaching the assets. By leaving assets in trust for a client’s chosen beneficiaries, the client can provide his or her loved ones with the ultimate in creditor and divorce claims protection, making the use of the asset protection trusts far superior to outright distribution of the assets. Holding assets in trust and keeping them in trust protects the assets from the claims of the beneficiary’s potential creditors, including a divorcing spouse and creditors in bankruptcy. This protection is available because the beneficiary individually “owns” nothing until assets are distributed out of the trust.
These asset protection trusts may be designed with as much control and flexibility as the client chooses to provide. Through the use of powers of appointment and various trust powers, the beneficiary has options he or she would have had if the beneficiary received the assets outright. For example, by allowing each beneficiary to serve as sole trustee of his or her trust share, the beneficiary can choose the manner in which to invest trust assets. Similarly, through a testamentary power, the beneficiary can choose who the assets will benefit at his or her death and who will manage the assets for the successor beneficiaries.