Normal power of attorney forms cease to function when you fall ill. This can throw your finances into disarray.
In this day an age, it is important to stay vigilant about protecting your assets. America has often been referred to as a litigation-friendly society, meaning that we are prone to engaging in lawsuits for even the most frivolous of "offenses." People have been sued for anything and everything including: having wireless internet in their homes, not raking their front walkways, coughing in public and giving bad reviews of former employees.
While you may not be able to protect yourself from falling victim to lawsuits by opportunists, you can and should take every prophylactic measure possible to ensure that a plaintiff does not liquidate your estate, should the court rule in his or her favor. After all, if your estate is vulnerable, you risk losing not only all of your money, but the entire estate intended for your children and other desired beneficiaries.
Here, we have compiled a short list and corresponding explanation of the four most basic methods that you can use to protect your assets from lawsuits.
The Children's Trust
The Children's Trust is the Trust fund that you set up to directly benefit your child. While the Children's Trust does not offer you access to your funds once they are placed into it, you will ensure that your children will have sufficient monies for use on things such as an education or first home.
You may put a maximum of $11,000 per year into the Children's Trust Fund, per spouse. If you and your spouse both put money towards the Fund, then you can put $22,000 per year into it.
When you put money into the Trust Fund, you can deduct the money from your annual earnings, in many cases, taking you down a tax bracket if your child is over the age of 14. However, once you put money into the Fund, you cannot retrieve it. You can also not transfer the money during the lawsuit, so if a claim against you is pending, you are not able to transfer funds. Thus, it is a smart move to continually invest money into your Children's Trust to ensure that your children will have sufficient support in the event that your estate is liquidated.
The Irrevocable Life Insurance Trust
The Irrevocable Life Insurance Trust, otherwise known as the ILIT, is a sound move for individuals even if they are not in a position to be faced with litigation. An ILIT simply allows for your entire life insurance policy to be passed onto your heirs should you become deceased. If you do not have an ILIT, then the government will tax any money earned from your life insurance policy by your beneficiaries.
For an ILIT to work, you have to name a trustee. The trustee then has to purchase a life insurance policy with your name on it. You can provide the funds for him or her to purchase the policy.
The major benefit of an ILIT is that, unlike a simple life insurance policy, you can control how the funds from an ILIT are spent. You can delegate a portion of funds to education, individuals, and other causes to ensure that your hard-earned money is spent in the fashion you would best support.
Family Limited Partnership
A Family Limited Partnership is similar to a Limited Liability business partnership in that you and your family members will have control over a mutual pool of assets.
There are two different types of Family Limited Partnerships: General Partnership Interest and Limited Partnership Interest. The General Interest allows you to have control over the funds and how they are used, whereas the Limited Interest keeps your involvement at a minimum.
As with a business partnership, each partner has access to a specified amount of funds when the assets are distributed.
Foreign Asset Protection Trust
A Foreign Asset Protection Trust is similar to having an foreign bank account, in that your transactions will take place overseas. The major benefit of having a Foreign Asset Protection Trust is that your trust will be out of the hands of US jurisdiction. In other words, the US courts cannot access your money in the event that you are sued and found responsible for a portion of the damages awarded to the prosecutor.
Furthermore, you do not have to pay taxes on the money that you store in your Foreign Asset Protection Trust.
With a little help and planning, you can protect yourself and your family from predatory lawsuits against you. The above methods not only save you from losing your entire estate, but they are also strategic ways to set aside funds for your beneficiaries, even if you are not the victim of a lawsuit.If your estate is vulnerable, you risk losing not only all of your money in a lawsuit.The Children's Trust is the Trust fund that you set up to directly benefit your child.An ILIT simply allows for your entire life insurance policy to be passed onto your heirs.With a little help and planning, you can protect yourself and your family from predatory lawsuits against you.
Putting Family Loans in Writing for Estate Planning Purposes
Every individual is happy to assist a family member when they need it the most and it often times comes in the form of a money loan. Although it may seem uncaring to have the terms of the loan put on paper, it can prevent a major feud from occurring amongst your heirs upon your death. An estate accounts for all of the assets that have been accumulated over your lifetime. An undocumented loan could result in chaos when it comes time to make disbursements to your heirs, as it can significantly reduce each individual's share. A written loan allows each of your heirs to receive their proportionate share, with the borrower-heir receiving less than his pre-determined share, after taking into account their loan balance. This is the most fair and honest approach to any family loan.
A family loan that is given on your behalf should state all of the terms including the amount loaned, any applicable interest rate and the repayment period. An estate planner will also need to be advised of any family loans so that your estate can be properly administered. For estate planning to be effective, your current financial picture, including changes to your assets such as family loans, need to be disclosed to the planner.
If the estate is not aware of a family loan, it would be up to the courts to decide the circumstances and facts of the advance. A family loan that is not in writing can be destructive to a family unit when the loan is brought into question. The loan's existence and terms can become debatable. A family member could end up saying that they owe much less than what is actually due, or they may change the repayment terms to make the loan more favorable to them. This can cause ill-will and undue friction among family relationships, which could have been easily avoided had a written loan agreement been established.
When you loan a family member money, it is advisable that the terms are stated in writing to prevent any issues in the future. It may be difficult for both parties to do so, but it is much more difficult to ascertain what actually occurred when one of the parties dies.
Be Sure to Set Up Long-Term Care Arrangements for Your Pet
Recently the Taco Bell chihuahua passed away. Remember him? Or I should say her as it was a female like most of the animal advertising icons. Take Spuds McKenzie for example. Old Spuds was kicked off the air because they said that she was so lovable that she encouraged young children to drink. And the Taco Bell chihuahua was kicked off because of ethnic insensitivity when some Hispanics complained that he was a stereotype. Seems like animal spokesmen always get into trouble. I'm just waiting for something to happen with the Geico gecko.
But with all of the money that she made, I'll bet that the chihuahua had quite a bit of a little trust fund going for her. Unfortunately dogs that earn a lot of money on TV can't determine how it will be spent. Since they are not people, (despite what some people think), they can't earn any money.
A lot of people also leave their non-famous pets a lot of money when they die. They feel that they can trust the dog being in their will, but not the family. Therefore other arrangements must be made. A famous example is that of Leona Helmsley.
The press eagerly reported that she had left most of her substantial fortune to her dog. Not true. She may have wanted to, but the law would have prevented any of the money going directly to the pooch.
Instead she would have had to set up a trust fund just like an underage child, only when the child grows up he can collect the money, but not in the case of the dog.
According to St. Louis Pet Tails Magazine, a pet is considered to be a piece of property. They recommend that you not only set up short term verbal arrangements for the care of your pet in case you become ill or die, but also formal written instructions. If you don't the pet just may be euthanized when you die or become incapacitated.
You should have at least two people who are willing to take care of your pet. Wills can take six months to go through probate court and there will be no funds allocated during that time period to provide for the care of your pet.
So just putting your pet in your will is not enough. A separate trust must be established to take long term care for your pet out of the long legal process. Within the trust you can also specify how you want your pet to be cared for: food, medications, living requirements, housing, and training can all be specified specifically in the trust.