Estate Planning and Asset Protection in North Carolina

By Attorney Kelly Jesson

In this second part of the series, we’re focusing on asset protection and estate planning. Two weeks ago, we wrote about protecting your assets from creditors during your lifetime. Through estate planning, we help people plan to protect their estate assets from their creditors as well as the creditors of the beneficiaries.

One of the main purposes of the estate administration process is paying the deceased person’s bills, and if they have a lot of debt, that can wipe out assets meant for the next generation. However, there are a few assets that are protected from the deceased’s creditors: if your spouse or children are listed as the beneficiary of a life insurance policy or retirement account, when you pass away, that money will pass to your loved ones free and clear of any creditor claims. Additionally, if you own real estate with your spouse as “tenants by entireties” (TBE), they will inherit it at your death free and clear of any creditor claims. Other assets, like cars, bank accounts, investments, and business interests may be up for grabs.

Unfortunately, this does not mean that these assets are now exempt from the beneficiaries’ creditors. If one of our client’s goals is to protect the beneficiary from the beneficiary’s creditors, we must set up a trust. There are different types of trusts that provide protection from a beneficiary’s creditors. The thing they have in common is not making distributions to the beneficiary mandatory and giving the trustee discretion to not give the beneficiary money in certain circumstances. For example, if the trustee was required to distribute $5,000 to a beneficiary each month, the trustee has no discretion, and that money would go right into the hands of a creditor upon distribution (or worse yet, a creditor may attach a lien to the trust). However, if the trust agreement provided that the trustee could decide to withhold or delay a distribution to a beneficiary if they had a creditor (for example, they had filed for a divorce or bankruptcy), the $5,000 would not belong to the beneficiary because it would not be a guaranteed distribution, and the trustee could wait to make the distribution months or even years down the road until the beneficiary’s situation resolved itself. If it did not, the money would likely go to the decedent’s grandchildren, which most clients prefer versus a creditor.

It goes without saying, but one of the main ways we help clients protect assets for their beneficiaries is through planning to minimize costs at death. For example, we make sure clients have beneficiary designations updated. If a large life insurance policy goes through probate, it could cost the family thousands of dollars in court costs. For clients who own property in multiple states, we can help by transferring their properties to a revocable trust now instead of their loved ones spending thousands of dollars probating their estate in multiple states after they pass away. Of course, if an estate tax bill is anticipated, there are many things we can do to minimize those effects.

If you are interested in implementing any of the above ideas in order to protect your assets, please give the attorneys at Jesson & Rains a call!