Asset Protection from the Claims of Creditors Clauses - 2 Clauses

CLAUSE 1: Spendthrift Clause
CLAUSE 2: Discretionary Trust Distribution Language

There are essentially two types of asset protection available in a Will, namely spendthrift protection and discretionary trust protection. A spendthrift clause protects against the creditors of a beneficiary attaching the assets at the estate or trust level and forcing a distribution in satisfaction of the creditor’s claim. Discretionary trust protection is based on the fact that a beneficiary lacks an enforceable right to a distribution and has nothing more than an expectancy that cannot be attached by creditors.

Every well-drafted Will should contain a spendthrift clause, since in its absence, many states (especially those that have adopted the Uniform Trust Code and/or the Restatement (Third) of Trusts) allow any creditor to attach present and future distributions of any trust, including even a discretionary trust. Accordingly, a sample spendthrift provision is provided in (Clause 1).

The recently promulgated Restatement (Third) of Trusts has led to some concern where discretionary trusts are involved. The Restatement (Third) attempts to create an enforceable right in a discretionary beneficiary to a distribution in almost all discretionary trusts. While this has been a highly controversial issue that has certainly not gained universal acceptance, some jurisdictions have adopted this standard. Accordingly, careful drafting suggests that a very discretionary distribution standard should be included in a Will, so that potential creditors (matrimonial and otherwise) of a discretionary trust beneficiary are not allowed to successfully attack the beneficiary’s interest. A sample provision to accomplish this end is provided in (Clause 2).

Author:
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.

He is the author of several books, including: Planning for An Aging Population; Business Entities: Start to Finish; Taxation of Divorce and Separation; Income Taxation of Estates and Trusts, Preparing the Audit-Proof Federal Estate Tax Return, Putting It Together: Planning Estates for $5 million and Less, Family Business Succession Planning, Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts; The Federal Gift Tax: A Comprehensive Analysis; Charitable Remainder Trusts, Grantor Trust Planning: QPRTs, GRATs and SCINs, The Estate Planning Course, The Retirement Planning Course, Retirement Distributions: Estate and Tax Planning Strategies; The Estate Administration Course, Tax Strategies for Closely-Held Businesses, and Tort Litigation Settlements: Tax and Financial Issues.

Mr. Siegel has lectured extensively throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including National Law Foundation, AICPA, CCH, National Tax Institute, National Society of Accountants, and many others.  He has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
The Siegel Group provides consulting services to accountants, attorneys, financial planners and life insurance professionals to assist them with the tax, estate and business planning and compliance issues confronting their clients. Based in Morristown, New Jersey, the Group has provided services throughout the United States. The Siegel Group does not sell any products. It is an entirely fee-based organization. Contact the Siegel Group through its president, Steven G. Siegel, e-mail: [email protected].