Protecting Your Spouse

Protecting Your Spouse2018-08-31T14:04:30+00:00


A creditor can be anyone who demands payment from your spouse for debts or who files a lawsuit against your surviving spouse claiming your spouse is legally liable to them. Litigants might be seeking compensation for slip and fall accidents, automobile crashes, or any of the many other reasons that people are being sued these days. The cost of defending against such litigation and a possible judgment that awards huge damages can financially ruin a surviving spouse, which will also impact negatively on your children.

A predator is anyone who preys upon your surviving spouse for money, including a new suitor. A predator can also be the person who marries your surviving spouse with good intentions, but, when the marriage goes bad, initiates a divorce to take as much as he or she can from your spouse. Either way your spouse can be financially wiped out. The good news is that careful planning with the right attorney can protect your surviving spouse from these disastrous situations.?

When a spouse dies, the estate is usually left outright to the surviving spouse. This is a big mistake! Anything owned by your surviving spouse can be taken away. The first rule of protecting your spouse from creditors after your death is, “Do not let your spouse own your assets after you die!”
This strategy is not as bad as it sounds. In fact, most spouses actually appreciate the strategy when they learn they can maintain the benefits of ownership without the risk of having it exposed to any creditor claims.
The implementation of this strategy requires that you first create a revocable living trust and transfer your assets into it. When you die, the instructions of your revocable trust state that your assets will be moved to a special trust inside your revocable trust that can be used for your surviving spouse’s health, education, maintenance, and support. These instructions mean that all of the trust’s assets are available to maintain your spouse’s lifestyle. The beauty of this plan is that although your spouse will receive all the benefits of being a trust beneficiary, your spouse will not face any of the risks faced by those who receive their inheritances outright, including the risk of losing it to creditors.
As a trust beneficiary, your spouse is entitled to what the law calls the “beneficial enjoyment” of the trust property. This gives your spouse all of the benefits of enjoying the use of the trust property without fear of losing it to creditors.
This arrangement give your spouse “control without ownership.” Even though the trust owns the assets, your spouse will continue to manage and control them. The benefit is that if a creditor makes a claim against your spouse, assets in the trust are protected because they are not legally owned by your spouse–they are your assets left in trust under your spouse’s control and for your spouse’s benefit. Because a creditor is not your spouse, the creditor has no right to claim the trust’s assets!

No! Not all trusts provide creditor protection. If creditor protection is desired, the trust must be carefully planned and drafted to achieve this valuable benefit. Lawyers with expertise in estate planning will know what provisions are needed to protect your spouse from creditors.

An “Asset Protected Trust” also provides protection from predators. A knowledgeable estate planning attorney will insert special provisions into the trust to keep predators away from your spouse’s door. Special trust provisions may include:

  • directions that the trust assets an be used only by your spouse and no one else;
  • appointment of a co-trustee to help protect your spouse from potential predators; and
  • a requirement that prior to remarriage the new spouse must sign a prenuptial agreement relinquishing all claims against your spouse’s assets.

Most estate planning attorneys counsel their clients who are about to remarry to consider putting a prenuptial agreement in place. Essentially, the prenuptial says, “what is mine is mine and what’s yours is yours, and should we ever divorce, or if one of us dies, I keep my stuff and you keep yours.” This is only fair because if a divorce should occur when the marriage is still young, your surviving spouse will leave the new marriage with the same assets he or she brought into it, as well as an equitable share of any assets acquired together during the marriage.

Your trust’s directions can provide financial incentives for your spouse to request a prenuptial agreement. For example, your trust instructions can require the trustee to cut off distributions to your spouse if a remarriage occurs without a prenuptial agreement being signed. If a prenuptial agreement is signed, your spouse can still fully use and enjoy the distributions from the asset protected trust. Your spouse can blame the need for a prenuptial agreement on the terms of the trust, and thereby avoid the difficult discussion of what happens if the marriage fails.
By putting the proper planning in place, you will have the peace of mind of knowing that your spouse (and the future inheritance of your children) will be protected from potential creditors and predators. By the way, you just might be the spouse who survives and is glad to find that these asset protections are in place for your benefit!

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