Protect Assets Can a trust which allocates family business assets to the next generation be revocable? Yes, but that has inherent risks. Consider Sarah, who wants to do just that. Sarah’s attorney tells her that if she makes the trust revocable, all of the business assets will remain under the ownership of the family. As a result, they will be at the risk of being attached by creditors or lost in lawsuits. Te assets might also be seized to satisfy any nursing home bills incurred by the person who establishes the trust.
For these reasons, Sarah decides to set up an irrevocable trust. Because the trust will own the business assets, they will not be subject to the above risks of loss, either before or after Sarah dies.
Te terms of an irrevocable trust can address the demands of complex family dynamics. Here are a few examples:
To protect the income of a young child Adam and Sylvia, who own all of the stock of ABC Company, have a nine-year-old child named Jane. Tey establish an irrevocable trust that designates Adam’s brother Jason as the trustee. In the event of the death of the parents, Jason will run the enterprise. Jane, the trust’s beneficiary, will receive stock dividends and distributions from any assets.
To avoid sibling disputes Andrew and Beth are concerned that when they die their children might squabble about the family business assets, putting the organization’s survival at risk. Daughter Suzy has already said she wants to run the business, while her brother John feels the business should be sold and the assets distributed.
“A trust can designate that Suzy will run the business, and that John will not be involved but will receive a certain amount of money monthly from the trust,” says Nicole N. Middendorf, CEO of Prosperwell Financial, Plymouth, MN (
prosperwell.com). “And the trustee will make sure the provisions of the trust are carried out.”
In a case like this one, says Middendorf, a trust is especially valuable because it can mandate the disposition of assets at a time when emotions might run high. “Money often brings out greed,” she says. “People can be tempted to make decisions based on their own interests rather than on what makes sense for the future of the company and the family.”
A trust is especially valuable because it can mandate the disposition of assets at a time when emotions might run high.
To protect a victim of addiction Bart and Susan want to avoid leaving a sudden windfall to their son Chet, who is struggling with a drug addiction. How can they make sure Chet is taken care of in the event of their deaths, while avoiding a waste of inherited assets?
“A trust can designate that Chet receive a certain amount of money every month,” says Middendorf. “Or, to avoid funding the addiction, a trust can pay his rent so he always has a roof over his head. Te trust could even mandate that he pass a drug test to receive his monthly payment.” A similar arrangement also can help when the beneficiary might have a mental disability.
TPI Turf News November/December 2018
93
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