By Lee R. Phillips

Today I will answer additional inquiries from people who are researching better ways to handle asset protection and estate planning matters. I hope everyone can learn from the things others are facing, and see options to explore with your own trusted advisors.

Q. My parents and I just purchased a condo as joint tenants. We are each 1/3 owners in the property and all 3 of our names are on the real estate deed. The property is my permanent residence only. If the property is put into my father’s living trust (I am a secondary trustee, after my parents and the primary beneficiary) can a creditor place a lien or force the sale of this property (while in the trust) if the possible future judgment is only against myself (an individual)?? Thanks!! Brian W.

A. In my book, Guaranteed Millionaire I have a line that reads “Kids are like yogurt, you never know when they are going to go bad.”  The line is intended to make the reader laugh, but it drives home the point that the more names that are on your deed the greater the likelihood that the property will be subject to a creditor.  The answer is “Yes, when any one of you listed on the deed has a creditor, that creditor can force the sale of the property. If you take your name off the deed and make the sole “owner” your parent’s trust, then the property would not be subject to future creditors you may have.  However, at that point it is not your house any more.  It is your parent’s piece of property.  If they let you live there for free, the IRS will impute a reasonable rent to their income.  Additionally, you can’t take advantage of the tax advantages home ownership gives you.  They can’t take advantage of those either, because it is not their personal residence.  The house will still be subject to their creditors, even though it is in the trust.  The trust doesn’t protect property from creditors.  It prevents probate.  The house will be included in your parents’ estate for estate tax calculations.  You have lost total control over the house.  (Actually, you have no control now, because your parents have to approve a sale or whatever.)  If you are taking your name off the deed to avoid current creditors, they can undo the transaction, because it is a fraudulent conveyance.  Why are your parents on your deed as joint tenants in the first place?  If you need them to get a loan, they should simply guarantee the loan and not go on the deed. (more…)

A note from Lee R. Phillips

You may be starting to see warnings about your estate planning in 2010.  The estate tax has been repealed.  All Right!!!  It is a great year to die.  NOT SO FAST.  Don’t kill yourself yet.  All is not what it seems to be.

First a little reassurance that what you have done using the LegaLees system is ok.  The warning says that under a lot of estate plans the surviving spouse (spouse that lives after the first one of the couple dies) can be left out in the cold.  That won’t happen with the living trusts and wills in the Accumulation and Preservation of Wealth set.  The warning is for wills and trusts that try to control estate taxes by passing all or part of the estate directly to the children, not the surviving spouse.

My goal is and always has been to protect the surviving spouse.  The trusts are set up so that a shelter trust is created which removes the maximum amount that the deceased spouse could pass to the children without an estate tax (the “exemption equivalent” as the amount is called in the legal industry).  That amount changes.  It has been going up for the last decade, from $1 million to $3.5 million last year.  So if a couple had $4 million in assets and the husband died in 2009, a trust (Trust B) would have been created to “shelter” $3.5 million from estate taxes when the wife died.  This whole thing is explained in detail in my book, Guaranteed Millionaire.  It is a great read (not a boring financial book). (more…)