Risk Management in Estate Planning

When thinking about estate planning, most people think solely about how their assets will be distributed at their death.  Obviously, that is of primary concern but many of our clients’ estate plans encompass the often-neglected area of risk management.  In each of our lives, there are risks that must be considered and therefore planned around.  There are the obvious risks of premature death and disability and those risks are often covered by insurance (which we will get to in future Atheneum commentaries).  However, there are countless other risks to be considered, many of which can be addressed in an effective estate plan structure.

During your life, one of the biggest risks is a lawsuit or litigation.  People who work in high risk (or often sued) professions can utilize planning strategies to limit their financial exposure to a settlement or judgement.  I asked Greg Hunter, partner at Miller, Griffin, and Marks, PLLC about some of the strategies he had used in the past to protect against such risks and Greg noted “There are numerous types of techniques that we utilize for our clients who are in high risk professions in order to limit such client’s potential liability.  These techniques involve the use of limited liability companies, family limited partnerships, living trusts, irrevocable trusts and ensuring that the proper insurance is in place.  Also, ensuring the proper ownership to assets is a key component of asset protection planning.”  There are obvious high-risk professions like doctors and private pilots but many service industry jobs like accountants and attorneys can be exposed to lawsuit.  In addition, people who own rental property can be particularly exposed.  It is never a bad idea to consider where you might have exposure and an effective plan should incorporate risk management strategies where needed.

There are quite a few misconceptions about estate planning, particularly with a commonly used trust known as a revocable living trust.  According to Mr. Hunter, “Typically, a revocable living trust does not protect your assets from creditors.  This is because a revocable living trust can be changed or terminated at any time.  However, an irrevocable trust can be used to protect assets from creditors because the settlor does not legally own and cannot control the assets of the trust”.  I asked for his best words of advice for anyone and he said “Plan ahead.  Consider your possible exposure to litigation and claims.  Once a claim has been made, some of the asset protection strategies are subject to attacks and reversal by a judge or jury as such transfers could be deemed as “fraudulent conveyances.””

After one’s passing, risk management should not end.  Utilizing proper planning strategies can help protect your beneficiaries from their inherited assets being pulled into a lawsuit.  We also advocate trust planning so that assets will “stay within the family” in the event of divorce or the death of a child.   Trust planning is most known for restricting and controlling access of assets to heirs but many of our clients implement trust planning for the primary reason of protecting their beneficiaries from risk described above.

Implementing risk management strategies into your estate plan is not difficult.  In fact, most modern estate plans incorporate many of the ideas above.  If you are unsure if your current plan provides such protections, we hope you will reach out to us to discuss.  We can help you think about where risk might exist in your situation and are more than happy to bring in legal professionals to develop a proper solution for you.

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