THE CASE FOR THE TRUST PROTECTOR
“TRY TO BE LIKE A TURTLE — AT EASE IN YOUR OWN SHELL”
THE BLACK AND WHITE TELEVISION GENERATION
Ozzie Nelson was an actor and a band leader. Harriet Nelson was a stay at home mom who mostly wore aprons and never left the kitchen. Ozzie and Harriet had two children, David and Ricky Nelson. They lived in a perfectly preserved television world from the 1950s — until things changed.
The clock suddenly turned from 1950 to 1960 and the suburban family lifestyle of Ozzie and Harriet evaporated. The longest running live-action sitcom in television history lost relevance and the show was cancelled in 1966. Ozzie died of cancer in 1975. Harriet became a recluse and died of natural causes in 1994.
WE AREN’T IN KANSAS ANYMORE, TOTO
Meanwhile, off-screen, child actors David and Ricky Nelson out-grew their TV personas and embraced the 1960s. Ricky Nelson forged a career in music that rivaled Elvis Presley. He led a typical musician lifestyle, battling drugs and alcohol before he died while on tour, in a private plane crash in 1985. As a result of the crash, his estate was sued for 2 million dollars for the death of a passenger.
THIS IS NOT A MOVIE
America’s favorite TV family was and remains, in part, fictional. Off-screen, in the real world, we face the possibility of personal injury, property damage, divorce, illness, theft, job loss, disability, business failure, malpractice, bad debts, dog bites, or someone just trying to get one over on you.
Our society is increasingly litigious as theories of liability continually expand within the legal universe. Every person has a ten (10%) percent chance of getting sued this year alone according to IFB Trust Services, Inc.
THE LAW OF THE FISH
It is a law of nature that big fish eat little fish, so little fish have to be fast – or be well equipped with something like a tortoise shell. The turtle has survived in this world for 220 Million years. The simple secret: it has a protective layer. Everyone needs one.
WHAT WOULD OZZIE AND HARRIET DO?
The closest thing to a tortoise shell we can give ourselves and our children is a trust. Properly drafted, a trust can protect anyone from virtually all forms of financial catastrophe. The key to trust protection is a feature referred to as “spendthrift” protection, which is a hard, shell-like provision of law that exempts all trust assets from claims of creditors. It is asset protection in its most basic form.
Anyone can set up a trust and they are no more expensive to create or maintain than a normal business entity, such as a limited liability company. They are not just for the wealthy.
If Ozzie and Harriet were here today, they would be discussing asset protection planning with trusts, not whether Ricky would get a date to the high school prom.
STRAIGHT OUTTA MAYBERRY
Most estate plans today are straight out of the 1950s. The most common scenario would be a married couple (Ozzie and Harriet) with children (Ricky and David). The standard “plan” would be to prepare a set of “mirror image” wills that provide for the surviving spouse and then for the children. If the children are too young to handle money or are just plain irresponsible, the wills should include a children’s trust that terminates at a certain age.
However, terminating a trust is like removing the tortoise shell. Even if you think you don’t need it — you might someday. As such, it make sense to stretch the term of the trust, if nothing else but to protect the assets. It is virtually free and continual asset protection, which is better than waking up every day to Mrs. Nelson’s homemade cookies.
One concern about stretching the term of a trust for a beneficiary (child, spouse or anyone else) is that the intended recipient will not have direct access to the trust assets. The trustee, if given complete discretion, gets to decide if and when a beneficiary receives a distribution from the trust. In real terms, the beneficiary is somewhat beholden to the trustee. However, there exists a way to ensure the Trustee is not an impediment to the beneficiary (i.e., to have Mrs. Nelson’s cake and eat it too).
ENTER THE TRUST PROTECTOR
A trust may now create the office of a “Trust Protector” to ensure the wishes of the testator (or settlor) are carried out. A Trust Protector is like a soccer referee who has one job: to make sure the Trustee stays in bounds and follows the rules. If the Trustee commits a foul, the Trustee gets a red card and is taken out of the game.
In real terms, the Trust Protector can eject a Trustee for any reason (with or without cause), so the Trust Protector is a valuable player in the game of asset protection because it virtually ensures that the beneficiary (the intended recipient) will have no trouble with the Trustee, but also prevents the beneficiary from technically being able to compel a distribution, which is the key to asset protection.
THE CASE FOR THE LOUISIANA TRUST PROTECTOR
The concept of a Trust Protector is very common in jurisdictions that cater to domestic (on-shore) asset protection, such as Nevada, Delaware, Alaska and South Dakota. The Louisiana Trust Code is not nearly as bullet proof as these jurisdictions, which has resulted in the movement of massive amounts of wealth into these jurisdictions.
The main difference between the trust law in Louisiana and a jurisdiction, such as Nevada, that caters to domestic asset protection, is that Nevada affords creditor protection to “self-settled” trusts, which means an individual can put their own assets out of reach of creditors. This is not possible in Louisiana.
That being said, a Louisiana Trust affords a great amount of asset protection to “third party” trusts, which are trusts set up for individuals other than the settlor (e.g., a spouse or children). A Louisiana “third-party” trust can also be “decanted” into a Nevada trust at some point in the future (the topic of a future newsletter), which means a Louisiana third-party trust can be converted to a Nevada trust, thus allowing a beneficiary to protect their own assets at some point down the line.
The key to these arrangements is the office of a Trust Protector to ensure the beneficiary is not beholden to the Trustee. However, t he Louisiana Trust Code contains no direct reference to the office of a Trust Protector, which is arguably a foreign concept to Louisiana law — until now.
A Louisiana court has for the first time addressed and approved the concept of a Trust Protector in the case of In Re Eleanor Piece (Marshall) Stevens Living Trust, CW-14-697 (La. App. 3rd Cir. 2015). “Having found no barrier to the office of a trust protector…,” the Third Circuit affirmed the actions of a trust protector in timely removing a trustee, which removal was essentially motivated to protect trust assets from an IRS lien. As such, the Trust Protector has officially arrived in Louisiana.
A turtle without a shell in Louisiana quickly becomes soup. Even turtles sleep better at night knowing that their loved ones are protected, which is the purpose of a trust. With the advent of the Trust Protector and recent case law in Louisiana, the opportunity has now become a reality for enhanced and perpetual asset protection, which can be integrated into every estate plan.
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