Have you heard the notion that revocable trusts do not provide asset protection? Well, this isn’t entirely true. Consider the case of Frank and Geryl Pearl, as reported in a recent Forbes article titled “Pearl -- Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor.”
Essentially, the Pearl case illustrates the magic of a revocable trust. Frank, upon a cancer diagnosis, moved his business assets under a revocable trust, which meant that he was still effectively accountable for everything because the “revocable” trust was still under his control for all intents and purposes. Frank arranged for the bank to name him personally as guarantor to the business loans. Geryl was named beneficiary to the trust. When Frank died, the assets in the trust that were otherwise entirely accessible to the bank and other creditors passed over to Geryl and were completely inaccessible to the creditors. Poof! How did this happen? As summarized by Forbes:
“It should not be overlooked that a revocable trust can provide near-absolute asset protection to the beneficiaries of the trust after the settlor dies, so long as the trust is well-drafted, has only discretionary distribution, and a solid spendthrift clause. What is no protection for the settlor almost magically turns into fantastic protection for beneficiaries after the settlor’s death. A beneficiary’s interest is simply not acceptable by creditors except in the most extreme cases, such as unpaid child support or if the beneficiary commits a violent crime, etc.”
To learn more you can consult the Forbes article on the Pearl case, but you should also consult with competent legal counsel before relying on this case in your own planning.
We have helped many families create comprehensive Revocable Living Trusts that provides them an immense ‘peace of mind’ as well as protects their family and loved ones from the 3 ring circus of life.
If you have any questions or would like to schedule a consultation please call Attorney Patrick Kelleher at 781-871-PLAN (7526) or by email at Pat@myfamilylifeplan.com
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Patrick J. Kelleher is a South Shore, MA resident and estate planning attorney serving and protecting families and businesses in the South Shore, MA area. For more information on estate planning visit our firm’s website at www.MyFamilyLifePlan.com where you can check out our Blog, free Newsletter library, free Estate Planning Channel on Youtube and sign up for a Free e-Newsletter!
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This article is not intended to provide legal or tax advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
Reference: Forbes (September 30, 2012) “Pearl -- Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor”