A recent conversation with a banker friend of mine confirmed the value of advanced estate planning techniques and how they apply in a practical, “real life” sense.

Her story was all to familiar – I hear about these situations on a regular basis.  During life, Husband and Wife had an estate plan drawn up.  At least one part of it was a joint trust with no asset protection  components.  They trusted each other, so they were not worried about the surviving spouse doing anything with the trust assets other than what they initially agreed between them.  When the first of them passes away, the surviving spouse will continue to have the power to revoke or amend the trust in any way.  Fast forward many years – wife has passed away and Husband has a new wife.  That’s where the bankers story gets interesting.  Husband revokes the trust, comes into the bank with new wife, and proceeds to put all the bank assets from the trust into a joint account with his new wife.

Now, do you think that is what his first wife would have wanted?  If they had a typical distribution plan, it would have been set up to continue for the surviving spouse (which it did) and then had it split equally among their children.  Well guess what?  It’s quite possible that the children will get nothing.  What is Husband passes away before his new wife?  His trust is revoked and the bank assets (which are substantial) are in joint accounts with his new wife.  If he dies first without anything changing, his new wife stands to get the vast majority of his assets.  Who knows what else he changed to benefit her . . . beneficiary on life insurance, retirement accounts, annuities, etc.

What could Husband and Wife had done to protect against this?  They could have set their estate plan up in a way that guaranteed that not only a large portion of the assets would have gone to their children (no matter what!), but those assets could have been protected from Husband’s creditors, lawsuits against him, and yes, from a future spouse and even divorce.

Don’t misunderstand me, I am a HUGE proponent of marriage and think Husband and Wife should have trusted each other like they did.  I don’t see this advanced planning as saying you don’t trust your spouse, I see it as making sure that you protect as much as possible of what Husband and Wife worked so hard to create together and ensuring that it continues to benefit their family and not the government or creditors.  And this protection becomes even more important the higher your exposure to creditors is . . . for example, high-risk businesses, doctors, lawyers, and other professionals.

This is something I cover with ALL of my clients.  And no matter who you work with, make sure they understand how this protection can be beneficial and – more importantly – how to do it right!

What do you think?  Please share your thoughts.  I always enjoy comments from my blog readers.