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Never Underestimate the Protection of a Revocable Trust

Trusts are powerful devices. Infact, even “revocable” trusts can afford valuable protection. Consider the caseof Frank and Geryl Pearl, as reported in a recent Forbes article titled “Pearl -- Transfers to Revocable Trusts WereNot Fraudulent Transfers As To Creditors Of The Settlor.”

Essentially, the Pearl caseillustrates the magic of a revocable trust. Frank, upon a cancer diagnosis,moved his business assets under a revocable trust, which meant that he wasstill effectively accountable for everything because the “revocable” trust wasstill under his control for all intents and purposes. Frank arranged for thebank to name him personally as guarantor to the business loans. Geryl was namedbeneficiary to the trust. When Frank died, the assets in the trust that wereotherwise entirely accessible to the bank and other creditors passed over toGeryl and were completely inaccessible to the creditors. Poof! How did thishappen? As summarized by Forbes:

“It should not be overlooked that a revocable trust canprovide near-absolute asset protection to the beneficiaries of the trust afterthe settlor dies, so long as the trust is well-drafted, has only discretionarydistribution, and a solid spendthrift clause. What is no protection for the settloralmost magically turns into fantastic protection for beneficiaries after thesettlor’s death. A beneficiary’s interest is simply not acceptable by creditorsexcept in the most extreme cases, such as unpaid child support or if thebeneficiary commits a violent crime, etc.”

The issues surrounding how to createthe trust are worth mulling over, but just as important is the planning thatgoes into creating the trust and the correct timing to maximize its value. Youcan make good use of this timing given the present generous state of our estateand gift tax law, along with the currently depressed asset values.

Again, whether it's thinking about thefunds to put in the trust or the future of the inheritor, there's no time likethe present! Call us today and schedule a consultation and estate plananalysis. Remember, good planning is no accident.


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