You can protect your estate if you ‘Bubble Wrap’ your money

By Mark F. Winn CONTRIBUTOR

We all know what Bubble Wrap is. When we move, we use it to protect furniture and other valuables while these items are in transit. So what do I mean when I say “Bubble Wrap your money”?

Let’s consider a couple of questions you can ask yourself:

Q. When I am no longer here, if I could, would I want to leave my assets to my loved ones in a manner that protects these assets from lawsuits and divorce claims?

A. You can. South Carolina law provides that if assets are left in trust for the benefit of a loved one, and the trust includes a “spendthrift provision or clause” or “discretionary provisions” for distribution of assets, then the trustee of the trust cannot be compelled to distribute funds to a creditor.

There are a few minor exceptions, such as you cannot avoid your responsibility to support a minor child, but in large part, this kind of planning can go a long way to making sure your money does not blow away in the winds of frivolous lawsuits or creditors claims.

If you leave assets free of trust, they can become commingled with the assets of your in-law, which could expose them to loss in divorce.

Q. Does this limit my loved one’s freedom over the funds in any way?

A. No, not really. If a child, for instance, is the trustee of their own trust, then they are both the trustee and the beneficiary.

If they are the sole beneficiary and they are the trustee, then the trust is a beneficiary controlled trust. As such, there is no limit on control, no restrictions on what the funds may be used for or how the funds are invested or spent.

But if the child is sued or becomes involved in a divorce, the funds in the trust you created for your child will be protected. The key here is to recognize that the funds will be protected from loss.

This is the kind of insurance everyone should have. It can be put in place when you plan your estate. The beauty of this kind of insurance is there are no monthly premiums, no exclusions, and no threat of lapse.

With the rate of divorce at or near 50% in the United States, planning to leave assets to loved ones in a manner that keeps it in your family and prevents it from being lost to predatory spouses or in-laws in a divorce is more important than ever.

So, we know that Bubble Wrap is good to protect furniture and other valuables when we move, and now we know the same result can apply to your money when it is left to your loved ones.

Aside from avoiding unnecessary probate costs and delay, and minimizing or avoiding federal estate taxes and maximizing the income tax deferral on retirement plans, your planning should take advantage of the law which permits you to, in effect, Bubble Wrap your money.

For your loved ones, divorce and creditor protection should be part of every good estate plan.

F. Winn, J.D., Master