Magazine

Estates: Keeping It All In The Family


You may worry your children will blow your money on sports cars or lavish parties. But perhaps a greater risk is that your legacy wind ups in the hands of their ex-spouses or creditors, says Armond Budish, a partner at Budish, Solomon, Steiner & Peck, a Cleveland law firm that specializes in estate planning and elder law. That's why Budish, author of Why Wills Won't Work (If You Want to Protect Your Assets) (Avery; $22.95), recommends a strategy his wealthiest clients have long used to keep assets in the family. It pairs two trusts: one that resembles a will but is exempt from the often costly and time-consuming probate process, and another that protects inheritances from lawsuits and divorce. Budish spoke with Associate Editor Anne Tergesen.

Should everyone avoid probate?

No. You have to look at the size of an estate, the nature of the assets, and the family's dynamics. But in most cases, the cost of establishing a trust [to avoid probate] is less than the cost of probate. Such a trust will protect your privacy, too. Under probate, a list of everything owned by the deceased--every bank account, stock, bond, money market, mutual fund, and piece of real estate--is public record.

How do you avoid probate?

There are several ways. A father can name his son joint owner of his brokerage account. But if the son is sued, the money is at risk. Dad may also name his heirs beneficiaries of his property. But if his three kids inherit his house, they may not agree on how to fix it up or sell it. From a practical standpoint, the best tool is a revocable living trust [RLT]. Like a will, this document says where your assets will go when you die. To fund the trust, all you have to do is retitle your assets so the trust becomes the official owner.

Will you lose control over the assets?

No. You can be trustee of your own trust, so there are no limits on your ability to buy or sell assets, spend money, or change your mind about who gets what.

How can you protect the money you leave heirs from lawsuits?

Set up a SAFE trust [Safeguard Assets for the Family Exclusively]. I've also seen these referred to as bloodline trusts, family protection trusts, and spendthrift trusts. We often graft SAFE trusts onto our clients' revocable living trusts. That way, when a client dies, the assets not only bypass probate but automatically go into SAFE trusts and are protected against creditors. It's much easier for a parent to set up a trust that protects a child's inheritance than it is for the child to do so. Typically, the child would have to set up an offshore trust or a limited liability company, which are far more complicated and costly.

Do SAFE trusts have other uses?

Sure. If your son dies, a carefully constructed SAFE trust will ensure the money will go to your grandchildren. It will bypass your daughter-in-law, who might remarry and leave it to a second husband.

Who controls SAFE trusts?

A child can be trustee of his or her own trust. But to avoid putting the trust at risk if the child is sued, we typically require the child to step down as trustee if he or she is sued. Another party, usually a relative, will step in.

Are these trusts guaranteed to work?

Nothing is 100% guaranteed. The IRS may be able to crack a SAFE trust. Some states allow those seeking court-ordered child or spousal support to get access. But we've been drafting these for over 10 years and, so far, they've withstood challenges, even in cases where the beneficiary was convicted of a crime.

How much does setting them up cost?

It depends on where you live and the complexity of your estate. A rough estimate would be from $1,500 to $3,000 for a standard RLT, and from $1,500 to $10,000 to add SAFE trusts, depending on how many you have. There may be ongoing costs, too, such as filing annual tax returns and paying trustees' fees.


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