In addition to protecting family wealth from any dilution created by a divorce settlement, such trusts also protect assets from other sorts of attacks in today's litigious society, such as professional malpractice awards, personal injury claims related to real estate and environmental claims. There are also long-term family advantages. In some states, it is possible to create perpetual asset-protection trusts that continue from one generation to the next so that the trust will not be included in the taxable estates of those in future generations.
Remember that not all marriages end in divorce. Families may very well wish to include the non-family member in their wealth distribution. Asset-protection trusts can be used to accomplish this and at the same time guarantee that the resource remains within the family whether or not the marriage ultimately survives.
Before contemplating marriage, individuals may also want to consider establishing their own asset-protection trusts. Today, some state laws allow for what is referred to as "self-settled asset-protection trusts." In these states, an individual can create their own trust to protect their investments and business interests, their tangible personal property such as art, their real estate property, and anything else that might be subject to claims made against them, including but not limited to those of divorce settlements.
Prenuptial agreements, meanwhile, can be drawn up to manage and protect economic interests not typically suitable for asset-protection trusts-assets such as qualified retirement plans or perhaps a personal residence one spouse owned before the marriage.
Fairness and equity are desirable objectives when it comes to the division of marital assets in a divorce. While prenuptial agreements are designed to create such fair and equitable distributions, they can be cumbersome and inefficient vehicles, particularly when compared with more flexible and secure planning vehicles such as asset -protection trusts.
Earl E. Watson III CPA/PFS, is the CEO of North American Management Trust. D. Sean McDade is the director of client services for North American Management Corp. The firms concentrate on money management and trust management.