It was my pleasure to have the opportunity to interview Trust and Estate Attorney Laura Weintraub Beck about her work with couples who seek estate planning and family business protection strategies for safeguarding their legacy. I was curious how this may impact financial dynamics in the family. With a focus on future, families of wealth take specific financial measures proactively to protect themselves and their heirs, including from divorce.
Lili: Thank you for sitting down with me to describe how families need estate planning advice for asset protection, tax minimization, and legacy preservation strategies. As a divorce financial expert, I am very familiar with prenuptial and postnuptial agreements. Do you provide these agreements for couples who increasingly focus on wealth preservation and life’s contingencies?
Laura: First, let me explain that our firm does not prepare prenuptial or postnuptial agreements. We do, however, work with Family Law attorneys preparing such agreements for our estate planning clients to coordinate obligations at death under such agreements with their estate plans in a tax-efficient manner.
Lili: Do you work with family law attorneys when prenup or postnup agreements are created?
Laura: We often work with clients who have prenups in place when they want to complete or update their estate plans. We always ask clients if they have a prenup and we will review those to be sure the estate plan we are designing complies with the obligations in those agreements. Sometimes we find some of the obligations in the prenup are either unworkable or can be better achieved in a more tax-efficient manner if the prenup had been designed differently. In those situations, we can suggest an amendment to the prenup to resolve those problematic areas and ensure consistency with their new estate plan. In addition, we often assist clients concerned about potential divorces in their families. Often a client will call concerned that if they leave assets to a child or other family member who later gets divorced, the inheritance will be in jeopardy. Sometimes they ask if their child should have a prenup, but that, of course, is up to the child. We can still help the client, however, by structuring their estate plan to build in protections, even when their child or other family member doesn’t have a prenup or postnup agreement.
Lili: What are some other strategies to help preserve and protect wealth in those situations?
Laura: One common way is to have the inheritance placed in a specially designed trust. We often refer to these as “asset protection trusts” or “creditor/predator” trusts. The trust provides that the child is the beneficiary but that distributions to the child are in the sole and absolute discretion of an Independent Trustee. There are no automatic payouts of trust income or principal. Rather, the Trustee can decide if and when distributions are to be made, given the financial and family circumstances as they exist over time. Because there are no set standards for distributions, the trust provides a good measure of protection from creditors, including a divorcing spouse, trying to force distributions from the trust.
Lili: If an individual or couple is looking to create such a trust, do they fund it right away or upon their death?
Laura: It can be funded during lifetime, through gifts, or at death, or in a combination of both.
Lili: How do families disclose intentions to manage their financial affairs in disability, divorce, or death? Does the couple jointly work with you? Do they bring their adult children into the planning process when they set up an asset protection trust?
Laura: Some do and some don’t. Many parents will share their intentions and information about wealth on a “when and if” needed basis. They do not wish to disincentivize their children from being financially responsible and independent. Some may wish for privacy simply to keep peace in the family and avoid arguments. Sometimes parents will ask their children to speak with me directly about how they want to inherit their assets or I will receive a call from their child asking me if I can speak with their parents about protecting their inheritance from creditors or a potential future divorce.
Lili: Can these trusts be invaded or broken if one of the children is going through divorce and the nonrelated spouse demands as share of assets from this kind of trust?
Laura: Because the Trustee has no mandatory duties to distribute income or principal of the trust, the beneficiary, and therefore, their creditors, have no legal rights to force such distributions. However, it is important the trust be administered properly to achieve the greatest measure of this protection. Also, it is possible that, while the trust isn’t invaded to provide a distribution to a divorcing spouse, the existence and availability of the trust to the child could be a factor in a divorce proceeding when marital assets are being divided. So while not a perfect solution, such trusts do offer more protection than an outright inheritance.
Lili: So how do couples sort out their needs – is it better focus on prenuptial planning or estate planning?
Laura: You may need or want a prenup to address obligations in the event of a divorce and/or at the death of a spouse, and, if you have a prenup or postnup, the estate plan should always be coordinated with that agreement. You need an estate plan to provide for incapacity planning and the transfer of your assets at your death. If you do not plan ahead, your estate may not be as tax-efficient as possible, your family members’ inheritance may be more vulnerable to creditors than you would want and you don’t have control over who gets your legacy.
Laura Weintraub Beck is a Principal in Cummings & Lockwood’s Private Clients Group, based in their Greenwich office. She focuses her practice on estate planning, including business succession planning and planning for real estate holdings, estate administration, probate litigation and trust administration.
In addition, Laura is the Director of Client Communication for the Private Clients Group and was formerly in charge of attorney training at Cummings & Lockwood for several years. Prior to attending law school, Laura worked for the United States Senate Judiciary Committee drafting reports and legislation relating to crime and drug policies. She can be reached at [email protected] .