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The 5-Letter Word’s Evil Twin

By January 23, 2013No Comments

I often comment fervently about trusts, as any good estate planning attorney would, that is, talk a lot…about trusts. So, yes, if someone asks me how best to plan for their family and I learn that they have more than $100,000 in assets or that they’ve got other family members with bones to pick, I spell out the word T-R-U-S-T in as many ways as possible.

“However folk,” in the words within a great Sinatra monologue, a trust just ain’t the answer to all of life’s woes. A few “folk” can tell you why:

Tammy Lewis is being sued for $50,000. She owns a piece of property with her sister. The property value is $100,000. A revocable living trust came to Tammy’s mind when she found out about the judgment. And the thought should have made like the rabbit in the black hat and disappeared. Whether the property is held in joint tenancy or tenancy in common, Tammy’s interest in the property is attachable by a creditor. If held in a revocable living trust, the trust assets are still considered owned by the grantor (which could be Tammy), so there is no creditor or judgment protection for Tammy.

A House Divided - Photo: C Glass, U.S.

A House Divided – Photo: C Glass, U.S.

Sean Davidson and his wife were happily married for 15 years. His wife worked for 9 years and then took time off to give birth, nourish and nurture the kids, volunteer with the PTA, and so forth. Initially, she worked a little from home but not much, ultimately deciding that being a full-time wife and mother at least until the youngest was in first grade was important.

However, when Ms. Davidson worked, she and Sean contributed equal amounts financially to buy and help pay the mortgage on the $600,000 family residence.

Now, Sean wants a divorce. He contacted an attorney to place the house held in joint tenancy with the soon to be former Ms. Davidson in a trust for Sean and Sean alone.

The flow of this particular scenario would work something like this:

House + Sean Davidson Revocable Living Trust + Divorce =

Wife Awarded 50% of Marital Property (incl. part of the house) =

Invalid Trust = Sean Sues Lawyer = Lawyer Pays and Is Possibly Disciplined

Of course, other avenues exist to address some of these issues but the main point is if you owe a debt, you can’t hide from it with a trust. It’s called F-R-A-U-D.

 

The names of individuals found within this blog are purely fictional, unless otherwise expressly stated.

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