Predators and Creditors: How to Protect Your Family

Newsletter | Mar 13, 2017 | Hook Law Center

Estate planning has come a long way from when I first began practice in 1993. At the time, estate planning was highly driven by a need to avoid or minimize estate taxes and the tax rules took precedence over many other considerations for many families. Now, with possibility of estate tax repeal again looming on the horizon and with the current estate and gift tax exemption amount equal to $5.49 million per person, estate planners can again turn our attention to addressing problems that families face in their everyday lives that have nothing to do with taxes. For instance, how do you address the fact that your beloved child has married a person who is unsuitable in some way? How do you protect a descendant from his or her own bad choices? Do you have the ability to stop the train wreck before it happens?

The answer to all of these issues can be addressed within a trust. A trust is tool that we can use to allow someone, the trustee, to control and manage property for the benefit of another, the beneficiary. Trusts can come in many different varieties, depending on the goals that you want to accomplish. However, all trusts that are meant to protect a beneficiary from his or her creditors or from his or her poor choices should have a few things in common. First, the trust should have a spendthrift clause. A spendthrift clause is a clause in the trust that prevents a beneficiary from assigning or selling his or her interest to anyone, including a creditor. In Virginia, such clauses are enforceable with a minor exception relating to child support (but not spousal support) owed by the beneficiary. Second, the trust should give the Trustee discretion to make distributions to the beneficiary rather than allowing the beneficiary to withdraw assets or to direct distributions to himself or herself. The more discretion that the Trustee has, the harder it becomes for a beneficiary’s creditors, including a divorcing spouse, to compel the Trustee to make a distribution that is attachable by the creditors. Of course, such absolute discretion also puts the beneficiary at the mercy of the Trustee. Thus it is important to balance the risk based on the known extent of the problem.

For instance, if the intended beneficiary is an addict, it might make sense to give the Trustee plenty of discretion to stop all distributions from the trust except for distributions for rehabilitation in the event that the beneficiary is, in the opinion of the Trustee, using addictive substances until such time as the beneficiary is again sober. If the intended beneficiary is in an unstable marriage or is a spendthrift, the Trustee may have the discretion to make distributions for the beneficiary’s health, education, maintenance and support. By giving the Trustee some standard by which to make distributions, it gives the beneficiary slightly more leverage against a Trustee who is not appropriately exercising his or her discretion without significantly increasing the danger that a creditor of the beneficiary can compel a distribution to the beneficiary. However, properly drafted, the Trust property itself would be considered the separate property of the beneficiary and not subject to division between the divorcing spouses as marital property. Furthermore, the Trustee could be given the direct discretion to purchase items for the benefit of the beneficiary directly rather than making a distribution directly to the beneficiary.

As knowledgeable estate planners, the attorneys at the Hook Law Center have also become creative trust drafters in an effort to meet our clients’ changing needs and concerns. Make an appointment with one of us to review your current estate plan to make sure your individual goals and concerns are being met.

Ask Kit Kat – Robot Bees

Hook Law Center:  Kit Kat, are there such things as robot bees?

Kit Kat:  I know it sounds strange, but yes there are. They’re still in the experimental stage, but what we’re really talking about are small drones that do the work of bees in pollination of fruits, flowers, and other plants. As you may know, bees appear to be in decline due to a number of factors—pesticides, invasive species, and climate change. The rusty patched bumblebee, for example, was just listed as an endangered species in the month of January 2017, though the Trump administration has put a halt on that process for now.

The drone bees were developed by a Japanese scientist, Eijiro Miyako, a chemist at the National Institute of Advanced Industrial Science and Technology in Japan. He stumbled on his discovery somewhat accidentally 10 years ago when he was trying to create a fluid that could be used to conduct electricity. The resulting gel was extremely viscous. It wasn’t suitable for his purpose, so he stuck it in a cabinet uncapped in a bottle. Discovered 10 years later, the gel hadn’t changed at all. He also observed that when the gel was dropped on the floor, it was good at picking up dust. If it could do that, it might be good at picking up pollen. Then, he stuck the gel to the legs of ants, and with a control group as a comparison, he found that those with the gel were good at picking up pollen. The next step was to try it using drones. He and his colleagues outfitted the drones with horsehairs to approximate a bee’s body. They then slathered the horsehairs with the gel. It was very effective at picking up pollen from flowers—to the rate of 10x more effective.

More research needs to be done to make the drones more maneuverable and energy efficient, but it does offer a promising alternative to our dwindling bee population. (Amina Khan of the Los Angeles Times as it appeared in The Virginian-Pilot, February 11, 2017, pg.5)

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