A Wealth Preservation Trust is an irrevocable trust that you create yourself in which your spouse and children, and perhaps a sibling or other trusted family member either have, or may in the future be granted, a right to receive income or property that becomes part of the trust. That enables you to indirectly benefit from those assets during your lifetime through your spouse or child. The purpose of such a trust is both to protect your family from errors and omissions you might make yourself, and to shield the family assets in the trust from predators. You create the Wealth Preservation Trust yourself, making gifts of property or accounts of yours that might be needed to support your family at some time in the future. Such a trust will often be structured to allow a trusted third party to add additional trust beneficiaries, or to appoint trust assets to other members of your family.
Most commonly, people who have a higher-than-average chance of being sued, such as physicians, dentists, architects and contractors, professional engineers, entrepreneurs who are starting new businesses, and risk-takers generally. Generally, such people have high net worths, but in many cases, a Wealth Preservation Trust can be a useful tool for young professionals and young entrepreneurs to set aside a nest egg, just in case.
But regular folks who aren’t risk-takers can also benefit from conservative wealth preservation (sometimes erroneously called “asset-protection”) estate planning strategies. With a divorce rate of over 50%, as well as an increasing number of lawsuits, creditor protection for your family is an important objective, and for some, the most important objective, of estate planning.
Almost anyone can potentially fall victim to a lawsuit. Lawsuits can, and often do, arise out of accidents that truly weren’t your fault. Divorce or foreclosure might not have hit you, but the chances are they’ve hit someone you know. As financial writer Ben Stein has pointed out, we, ourselves, are the only ones we can reliably count on to assure our families’ security (and to fund our own retirements).
Now, one need not and should not have all (or even substantially all) of his assets in a Wealth Preservation Trust. But isn’t it wise to diversify your risk – to place a core group of assets – a family “nest egg” – outside the reach of predators?
Unfortunately, all is not roses and rainbows. A Wealth Preservation Trust or similar irrevocable trust cannot be used to delay, hinder, or defraud your creditors in contravention of Texas’s “fraudulent transfer” laws. In fact, if a creditor can prove that a fraudulent transfer to a Wealth Preservation Trust was made by you, the trust may be set aside, and attorney’s fees may be awarded to a creditor who proves fraudulent intent. The lesson here is that a Wealth Preservation Trust should be set up during “good times” – before any legal claims are filed or are even likely, before a professional error or omission occurs, and before extraordinary amounts of debt are incurred. (Right now might be a good time. Consider, if you will, that you may make regular contributions to a Wealth Preservation Trust just as you do under your retirement savings plans.)
Definitely. The requirements of Texas law, and the laws of the other states under which Wealth Preservation Trusts may be established by Texas residents, are many and detailed. Within the frameworks established by foreign-state laws, there are various structures, strategies, and options that need to be considered and discussed before pen (or toner) is set to paper. (Remember, Wealth Preservation Trusts by their nature are irrevocable.) In addition, the interplay of wealth preservation and protection tools with federal and state estate tax and gift tax laws, life insurance, retirement plans, and pre-existing family trusts all need to be considered.
If you are considering wealth preservation estate planning, it is important that you consult an experienced estate planning attorney. This is not an area where you should just take your advice from websites (even this one) or from non-attorney “asset protection consultants.” If you are a Texan with questions about wealth preservation planning, I invite you call me at 703-725-3684, so that we can arrange an appointment to discuss your situation face to face. (If you’d like to contact me initially by email or by using a form on this website, please just say you’d like to discuss wealth preservation. Please do not include details about your particular situation.)