Can a prenup & liability coverage be enough to forego having a trust?

[DiehardDisciple]

Hi Bogleheads,

I am wondering if the use of a well-designed prenuptial agreement combined with liability coverage - including umbrella liability for my investment portfolio - can work in place of a trust.

My very thoughtful mother shared with me her estate intentions and was curious of my opinion in leaving her estate to me in a trust. I will show her this thread. I am single and childless but I may get married someday, and my mother is particularly worried that a future spouse might clean me out. She doesn't seem to be worried about other lawsuit/creditor scenarios.

She inherited an existing trust that will be passed down to me and will only open (ie, end) after I die. But she is thinking about leaving the rest of her portfolio in a trust for me.

Having helped her interact with her trust representative at the bank that is the corporate trustee for her existing trust, I know that the trustee fees are high, often 1% - 2.5%. I don't know if the bank offers a sliding fee schedule for higher portfolios, but her portfolio that is not in a trust is substantial, and I admit I hate the idea of uncapped percentage fees. It feels like highway robbery to me.

I am lucky to have an excellent investment adviser (one-man shop) whose fees hit a flat amount at a certain growth point in one's portfolio, and I have already hit that amount with my own portfolio. When the time comes, it would be great to just add my inheritance from her that is not currently in a trust to the portfolio that I have with my adviser, a portfolio invested in Vanguard & DFA funds and custodied at TD Ameritrade. I have a great hourly tax-prep guy and a good lawyer too whom I trust. I also have insurance policies that include excess liability coverage (umbrella liability) to cover my net worth beyond the liability coverage offered by my other insurance policies, which is currently just renter's insurance as I do not own property at the moment nor a motor vehicle. [I live in a city and bike everywhere.]

I have looked carefully at prenuptial agreements and what is required to maximize the chances that they will hold up in court. This includes making sure the agreement is "not unconscionable" and that it is fair to the spouse (does not leave them destitute or on public assistance).

If I am lucky enough to meet the right person and one day get engaged, I will ask if she wants to do this prenup. If she doesn't want to do it and if I still want to marry her, at that point I will put my non-trust money in some sort of trust. However, my intention will be to be as open, collaborative, and fair as possible when drawing up the prenup together, while still protecting myself, so if the "hypothetical she" still doesn't want to sign the prenup, that should probably be a red flag to not proceed.

My question for you all is, "Do you think enough umbrella liability coverage - not "portfolio insurance" - combined with an agreed-upon prenup can protect my assets as well as a trust can?"

Also...
- Though I am not employed at the moment, my portfolio grows enough each year for me to take out more income each successive year, but never more than 3% per annum. I wouldn't be frivolous with the money she leaves me. I'm 44 years old.
- I have a good estate plan myself and POA documents in case I get incapacitated.
- The umbrella liability coverage (aka, "excess liability") is costly each year. But that premium is about a .025 % fee as opposed to a 1% trustee fee.
- I think there are some trust options where you don't need the corporate trustee, but here I'm wondering if I can forego the whole thing and just be protected with a prenup and enough liability coverage.
- The existing trust will leave me with some income each year if by a bad stroke of luck, my adviser and I royally screw up my portfolio. But relying on that alone would mean moving to another country with a much lower cost of living than the USA.
- If there is some global cataclysm, I figure it won't matter if she leaves this money to me in a trust or not.

Thank you for reading this. All thoughts and questions are welcome.

[RubyTuesday]

IANAL... and I Am Not Trust Expert... that said, I believe your mother could name you as trustee as well as beneficiary.

[NotWhoYouThink]

You might want to talk with a family law attorney in your state.

Normally inheritances are not considered marital property, so if you inherit money free of trust after you get married it typically would not be split up in a divorce. Similarly, funds you have prior to getting married would not be considered marital property.

But stuff happens in a divorce, so who knows. Maybe you have 2 special needs children. You may still have to spend extensively from your own funds to support them, divorced or not. If you divorce and your ex has primary custody, you may have to spend to support her so that she can care for the kids.

I'm not clear how putting money in a trust yourself will protect you. Usually revocable living trusts don't provide much protection. If you are talking about 8 or 9 figure amounts, you should be talking with an attorney.

Generally you have to pay for things you want. If you want protection from creditors of future exes, you have to pay for it. That may mean paying trustees.

[celia]

I am wondering if the use of a well-designed prenuptial agreement combined with liability coverage - including umbrella liability for my investment portfolio - can work in place of a trust.
...
I also have insurance policies that include excess liability coverage (umbrella liability) to cover my net worth beyond the liability coverage offered by my other insurance policies, which is currently just renter's insurance as I do not own property at the moment nor a motor vehicle.
...
My question for you all is, "Do you think enough umbrella liability coverage - not "portfolio insurance" - combined with an agreed-upon prenup can protect my assets as well as a trust can?"

A pre-nup agreement, umbrella insurance, and a trust all have different purposes so it doesn't make sense to me to compare therm.

Umbrella insurance also doesn't cover your portfolio. (To protect yourself against drastic market losses, you could "short" your holdings.) The amount of financial loss you are insured for doesn't have to have anything to do with your net worth or how much you would be liable for should you lose in a lawsuit. For example, your net worth could be $5M and you have $7M of umbrella insurance. You could still be sued for (and lose a case) for $53M. However, that is unlikely to happen since since the liability insurance lawyers would work very hard so the carrier doesn't have to pay out the first $7M. (You would be on the hook for the rest--should you lose.)

[bsteiner]

Banks and trust companies usually charge about 1% to act as trustee, less for large trusts and a little more for small trusts, but nowhere near 2.5%.

If your mother provides for you in trust rather than outright, she need not name a corporate trustee. You could be a trustee together with someone you're comfortable with, and you could have the power to remove and replace your co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). In that way, you would effectively control the trust.

Your mother should check to see whether she has a power of appointment over her existing trust, and if so, whether she can appoint it in further trust for you at her death such that you would effectively control it, just like with her own assets (if that's not already the default provisions of the Will or trust agreement in which your mother's existing trust was created).

While they're not mutually exclusive, having your inheritance in trust rather than outright is preferable to a prenuptial agreement. In addition to protecting your inheritance from your future spouse, it will also keep your inheritance out of your estate for estate tax purposes, and will protect your inheritance from your creditors, and Medicaid. It will also avoid the emotional issues that arise in a prenuptial agreement, especially in a first marriage.

[smackboy1]

My question for you all is, "Do you think enough umbrella liability coverage - not "portfolio insurance" - combined with an agreed-upon prenup can protect my assets as well as a trust can?"

The short answer is "no". These are 3 completely different tools and their functions are not the same at all. As this problem seems to stem from your mother's estate plan, you should probably start by talking to an estate planning lawyer. Although it seems that asset protection is your main focus, so seeking the advice of that legal specialty would not be a bad idea either.

TBH I say inherit in trust and buy adequate insurance. Forget about the prenup. To be valid both spouses have to have their own lawyers. It's negotiated so both parties have to agree. Depending on state law, not everything involved in a divorce can be settled in stone with a prenup. It can also get pretty acrimonious. A prenup only deals with 1 type of risk. The beauty of your mother leaving your inheritance in trust is that it's not subject to a future spouse's approval.

With respect to trusts, it's preferable to have your mother leave you assets in trust rather than leaving you assets in your name and then you trying to place your own assets into trust. While self settled domestic asset protection trusts are a useful tool, there can be many shortcomings compared to an inherited trust.

[DiehardDisciple]

Thank you for your responses, everyone. I took some time to mull over your replies.

- I will encourage my mom to do the trust, likely an irrevocable trust.

- Schwab offers trust administration services at 0.5% for the first $5million (and a lower % above that), which looks great (and maybe too good to be true). https://www.schwab.com/public/schwab/in ... vices#fees .

- I live in PA, and Schwab bases their trusts in Nevada, so I hope that won't be a problem (basing the trust in a different state)

- I believe my mom can arrange it so that my current investment adviser can still manage it so that one person has that full view of my portfolio, and my fees with him have already hit that flat ceiling.

- I haven't completely ruled out having her name me as the trustee and not Schwab (and will discuss this with our trust lawyer), but if the Schwab schedule is indeed at 0.5%, I will do that over any umbrella policy.

- My one sibling is on the opposite side of the USA as me. We are very close and trust each other. However, I see on some websites that siblings should not be co-trustees if they are hours apart. It might be best to just have Schwab be the trustee.

- I found out that umbrella policies only go up to $10m . I am well below that, but I am share that info in case it is of interest.

[afan]

Again, an umbrella policy does something completely different than the trust. Having your assets in trust in no way eliminates your need for insurance.

If you routinely take money out of the trust for your support and continue that once married then the assets of the trust may not be so well protected in case of divorce. In some states judges look at where the money to support the family was coming from and can pull trust money into consideration in determining equitable treatment.

It is worth discussing the protection you would have in PA but remember the decisions will be made by the state in which you would be living at the time of a divorce.

[RickBoglehead]

- Schwab offers trust administration services at 0.5% for the first $5million (and a lower % above that), which looks great (and maybe too good to be true). https://www.schwab.com/public/schwab/in ... vices#fees .

- I live in PA, and Schwab bases their trusts in Nevada, so I hope that won't be a problem (basing the trust in a different state)

Vanguard charges 0.25% for trust services, so 1/2 of Schwab (and a lower percentage above that). They also charge for management, i.e. Vanguard PAS, but it sounds like you don't need that, but you will pay for it anyway I believe.

First $5 million is 0.25% + 0.30% = 0.55%
Next $5 million is 0.10% + 0.20% = 0.30%
Next $15 million to $25 million is 0% + .10% = .10%

Vanguard is based in PA.

[DiehardDisciple]

Again, an umbrella policy does something completely different than the trust. Having your assets in trust in no way eliminates your need for insurance.

If you routinely take money out of the trust for your support and continue that once married then the assets of the trust may not be so well protected in case of divorce. In some states judges look at where the money to support the family was coming from and can pull trust money into consideration in determining equitable treatment.

It is worth discussing the protection you would have in PA but remember the decisions will be made by the state in which you would be living at the time of a divorce.

Hi afan. Thanks for your post.

I have umbrella (and underlying renter's) for my own assets, which are not in trust.

About the marriage issue, I will likely still do a prenup and will follow all the suggestions that are out there to make it as fair as possible to both spouses. Given that, I will then be at the mercy of the judge - if I get a divorce - since there is nothing else I can do, having both made sure to have a trust and a fair prenup.

[DiehardDisciple]

Vanguard charges 0.25% for trust services, so 1/2 of Schwab (and a lower percentage above that). They also charge for management, i.e. Vanguard PAS, but it sounds like you don't need that, but you will pay for it anyway I believe.

First $5 million is 0.25% + 0.30% = 0.55%
Next $5 million is 0.10% + 0.20% = 0.30%
Next $15 million to $25 million is 0% + .10% = .10%

Vanguard is based in PA.

Hi RickBoglehead,

Thank you for your post.

This is interesting. Thanks for sharing and for bringing Vanguard's trust abilities to my attention. I just went and found the document for this after reading your message. https://www.vanguard.com/pdf/a196.pdf . My investment adviser uses mostly Dimensional Funds for my equities and is in the Schwab network. I wonder if he would be able to buy DFA funds if the trust is based at Vanguard. But I think he prefers the Schwab platform to Vanguard, and with my advisory fees already paid off, Schwab would be 5 bps less than Vanguard (.50 >.55 for the first $5m; .25 > .30 for the next $5m) .

[afan]

Vanguard charges a little more than Schwab, not less.

If Vanguard were the trustee then Vanguard would do the investment management, not your current manager. Vanguard would use Vanguard funds.

[afan]

Schwab has two programs. In one, Schwab does the investing and serves as trustee. In the other, Schwab does the administrative work and a member of their advisor network manages the investments. The latter is the program you would use if you want to keep your current advisor. As I understand it, the cost of the advisor would be determined by the advisor and is not the same for all.

[Startingover2019]

Again, an umbrella policy does something completely different than the trust. Having your assets in trust in no way eliminates your need for insurance.

If you routinely take money out of the trust for your support and continue that once married then the assets of the trust may not be so well protected in case of divorce. In some states judges look at where the money to support the family was coming from and can pull trust money into consideration in determining equitable treatment.

It is worth discussing the protection you would have in PA but remember the decisions will be made by the state in which you would be living at the time of a divorce.

Hi afan. Thanks for your post.

I have umbrella (and underlying renter's) for my own assets, which are not in trust.

About the marriage issue, I will likely still do a prenup and will follow all the suggestions that are out there to make it as fair as possible to both spouses. Given that, I will then be at the mercy of the judge - if I get a divorce - since there is nothing else I can do, having both made sure to have a trust and a fair prenup.

I would advise you to NOT get married and live in sin. You’d be better off financially and not potentially be taken advantage of. Prenups are challenged by greedy spouses all the time.

[bsteiner]

...
- I will encourage my mom to do the trust, likely an irrevocable.
...
- I believe my mom can arrange it so that my current investment adviser can still manage ....

Why not simply a trust under her Will? Is her estate large enough to pay estate tax?

The trustees may hire whomever they want to manage the trust assets. Or they can manage the trust assets themselves.

[DiehardDisciple]

I am revisiting this topic 13 months later. I thank everyone again for your replies. I have a couple more questions and comments.

I'm not clear how putting money in a trust yourself will protect you. Usually revocable living trusts don't provide much protection. If you are talking about 8 or 9 figure amounts, you should be talking with an attorney.

NWYT, wouldn't a trust protect me from lawsuits where my insurance liability coverage doesn't cover me? My mother hasn't set up a trust yet, but I infer that an irrevocable trust would be needed if I am doing it to protect assets. The amount is in the mid 7-figure range.

For example, your net worth could be $5M and you have $7M of umbrella insurance. You could still be sued for (and lose a case) for $53M. However, that is unlikely to happen since since the liability insurance lawyers would work very hard so the carrier doesn't have to pay out the first $7M. (You would be on the hook for the rest--should you lose.)

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

If your mother provides for you in trust rather than outright, she need not name a corporate trustee. You could be a trustee together with someone you're comfortable with, and you could have the power to remove and replace your co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). In that way, you would effectively control the trust.

bsteiner, we are thinking about an irrevocable trust for long-term asset protection, and I believe that the beneficiary of an irrevocable trust can not be that trust's trustee. I may be wrong here as this is not my field of expertise. Thank you for your insight as always on here.

TBH I say inherit in trust and buy adequate insurance.

How does one determine how much insurance is adequate if an umbrella policy will still leave me dry should I be faced with an abnormally large judgment? See above in my reply to Celia. I am not a risk-taker nor criminal, etc, but I want to make sure a freak incident does not wipe me out financially.

Forget about the prenup. To be valid both spouses have to have their own lawyers. It's negotiated so both parties have to agree. Depending on state law, not everything involved in a divorce can be settled in stone with a prenup.

I had thought that maybe I could offer in a future prenup to pay my future spouse 1% of net worth for every year we were married, but my mom said not to even be that generous.

With respect to trusts, it's preferable to have your mother leave you assets in trust rather than leaving you assets in your name and then you trying to place your own assets into trust. While self settled domestic asset protection trusts are a useful tool, there can be many shortcomings compared to an inherited trust.

Thank you for bringing this up, smackboy1. I had thought about telling my mom to leave my share outright for me and then I could put it into a trust myself before (and if) I get married someday, but I have been wondering if how much weaker a self-settled trust would be for myself than one I inherit that was set up by my mother.

[oldfort]

I am revisiting this topic 13 months later. I thank everyone again for your replies. I have a couple more questions and comments.

For example, your net worth could be $5M and you have $7M of umbrella insurance. You could still be sued for (and lose a case) for $53M. However, that is unlikely to happen since since the liability insurance lawyers would work very hard so the carrier doesn't have to pay out the first $7M. (You would be on the hook for the rest--should you lose.)

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

You assumption about an umbrella amount is incorrect. Umbrella insurance agrees to pay damages up to the limit of liability. So if you have $7M of umbrella coverage, the umbrella policy will never pay more than $7M per occurrence. Your assets have nothing to do with it.

[DiehardDisciple]

For example, your net worth could be $5M and you have $7M of umbrella insurance. You could still be sued for (and lose a case) for $53M. However, that is unlikely to happen since since the liability insurance lawyers would work very hard so the carrier doesn't have to pay out the first $7M. (You would be on the hook for the rest--should you lose.)

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

You assumption about an umbrella amount is incorrect. Umbrella insurance agrees to pay damages up to the limit of liability. So if you have $7M of umbrella coverage, the umbrella policy will never pay more than $7M per occurrence. Your assets have nothing to do with it.

I wonder then what the point of getting umbrella is if I no clue in advance what the damages might be. I suppose I would just get the regular types of insurance I would need (home, auto, etc.) and any of their liability coverage would be gravy. I was thinking that an umbrella amount above my non-trust portfolio would cover me, but if a judgment against me is high enough, it could still wipe out these non-trust assets. Thank you for your comment.

[oldfort]

For example, your net worth could be $5M and you have $7M of umbrella insurance. You could still be sued for (and lose a case) for $53M. However, that is unlikely to happen since since the liability insurance lawyers would work very hard so the carrier doesn't have to pay out the first $7M. (You would be on the hook for the rest--should you lose.)

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

You assumption about an umbrella amount is incorrect. Umbrella insurance agrees to pay damages up to the limit of liability. So if you have $7M of umbrella coverage, the umbrella policy will never pay more than $7M per occurrence. Your assets have nothing to do with it.

I wonder then what the point of getting umbrella is if I no clue in advance what the damages might be. I suppose I would just get the regular types of insurance I would need (home, auto, etc.) and any of their liability coverage would be gravy. I was thinking that an umbrella amount above my non-trust portfolio would cover me, but if a judgment against me is high enough, it could still wipe out these non-trust assets. Thank you for your comment.

There's no easy answer to this. $7+ million verdicts are rare against individuals.

[afan]

There are many threads on here about how much umbrella insurance to buy. No one seems to know. Presumably an actuary who works in this area could provide data and risk estimates for individuals. Lawsuit climate where you live and work may matter. Nature of the activities in which you engage may matter. Whether you are a prominent person, widely known or presumed to be wealthy.

So far, no one has chimed in who knows what counts, what the risks are and the likelihood of being sued and losing.

That is why people use rules of thumb. Some use networth. Others buy the minimum, usually $1,000,000 and figure that should cover a high proportion of possible cases. Both are guesses. Might be right. Might be wrong.

If you know a friendly property and casualty actuary, ask them.

[ExPatKiwi]

Take my advice and don't get married it's not worth it.

[Lee_WSP]

There's no easy answer to this. $7+ million verdicts are rare against individuals.

That's an understatement, you can probably list them all rather quickly.

OP,
A trust primarily protects assets from creditors, not necessarily from torts as that's the primary purpose of insurance.

[FIREchief]

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

You assumption about an umbrella amount is incorrect. Umbrella insurance agrees to pay damages up to the limit of liability. So if you have $7M of umbrella coverage, the umbrella policy will never pay more than $7M per occurrence. Your assets have nothing to do with it.

What was incorrect about DiehardDisciple's post? He/she suggested that with "only" $7M of umbrella, that an $11M settlement would take away $4M of his/her $5M of assets.

[oldfort]

Celia, so, if I understand you correctly, I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ? This is really troubling. I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

You assumption about an umbrella amount is incorrect. Umbrella insurance agrees to pay damages up to the limit of liability. So if you have $7M of umbrella coverage, the umbrella policy will never pay more than $7M per occurrence. Your assets have nothing to do with it.

What was incorrect about DiehardDisciple's post? He/she suggested that with "only" $7M of umbrella, that an $11M settlement would take away $4M of his/her $5M of assets.

This assumption:

I assumed that an umbrella amount, if bigger than my assets, would cover me regardless of how big a successful lawsuit is against me.

[afan]

It was the part that suggested that umbrella insurance greater than total assets means that a plaintiff could never get to the assets, no matter how large the judgment. As celia noted, $7M of umbrella coverage means the company will cover up to $7M. If the judgment is more, then you are on the hook for the balance. That would be a huge judgement and the plaintiff's attorneys would have to be very confident of a big verdict to turn down a $7M settlement offer. Or your attorneys would have to have been highly confident of a verdict in your favor or a smaller one against you, and been wrong.

[FIREchief]

I guess I didn't get past:

I could have assets worth $5M and $7M of umbrella coverage, and if I get successfully sued for, say, $11M, I could have my assets reduced to $1M ?

Which was correct.

[neverpanic]

OP, I hate to be that guy, but you're expressing a sincere fear of losing a significant lawsuit, suggesting you have far greater exposure than the average Joe. If that's the case, it's my humble opinion you should never get married.

Regarding your inheritance, in almost every state, it's going to be treated as separate property in the event of a future divorce. Where you could run into problems, however, is with commingling monies. But as long as the money trail is clean and separate from your marital assets (in other words, don't use funds from your inheritance to buy your marital home), you should be fine.

[bsteiner]

...

Regarding your inheritance, in almost every state, it's going to be treated as separate property in the event of a future divorce. Where you could run into problems, however, is with commingling monies. But as long as the money trail is clean and separate from your marital assets (in other words, don't use funds from your inheritance to buy your marital home), you should be fine.

About 3/4 of the states, not quite almost every state.

[NYCaviator]

Run-of-the-mill trusts are vehicles for estate planning, NOT asset protection. Most big verdicts against individuals are for car accidents and professional malpractice, both of which can be insured against. You said you are not married, no kids, don't work, ride a bike everywhere, and rent an apartment. You seem like you are at a very low risk for being sued, so get an umbrella policy for $3-5m or so and you should be set. It's dirt cheap.

"Mid seven figures" is a lot of money to most folks, but not enough that you are going to need complicated and expensive asset protection planning, especially if you aren't a high-profile individual or engaging in risky behaviors (either personal or professionally). If you are set on using a trust for asset protection, you need to talk to a lawyer who is familiar with - and specializes in - domestic asset protection trusts. A regular old trust set up by the family estate planning lawyer is probably not going to protect your assets. It may be good for estate planning, but that's it.

[HIMcDunnough]

The fact that insurance companies are so willing to write multi-million umbrella policies for so cheap shows you just how rare large (covered) judgments are against individuals. Remember that with some exceptions that aren't worth getting into here, umbrella is really just protecting you against claims for negligence (car wrecks, premises liability, etc.) and won't cover intentional torts and lawsuits for shady stuff you do in business.

[bsteiner]

...

"Mid seven figures" is a lot of money to most folks, but not enough that you are going to need complicated and expensive asset protection planning, especially if you aren't a high-profile individual or engaging in risky behaviors (either personal or professionally). If you are set on using a trust for asset protection, you need to talk to a lawyer who is familiar with - and specializes in - domestic asset protection trusts. A regular old trust set up by the family estate planning lawyer is probably not going to protect your assets. It may be good for estate planning, but that's it.

You are correct that it would be complicated for him/her to set up an asset protection trust for himself/herself.

However, it’s not difficult for his/her mother to provide for him/her in trust such that it will be protected against his/her creditors and spouses, and to be out of his l/her estate for estate tax purposes.

[usagi]

I'll just agree with those suggesting you avoid marriage. Children born out of wedlock no longer are stigmatized and there are few social sanctions remaining. While I am not supportive of the societal degradation that has taken place it has happened. Your assets are a valid reason for eschewing the exposure that marriage brings with it. You also may wish to learn about common law marriages and states that may sanction your assets even without a marriage proper taking place based on your behavior. Also learn about prenups and how they may fail and why, but please be aware they can be voided and often are.

[NYCaviator]

...

"Mid seven figures" is a lot of money to most folks, but not enough that you are going to need complicated and expensive asset protection planning, especially if you aren't a high-profile individual or engaging in risky behaviors (either personal or professionally). If you are set on using a trust for asset protection, you need to talk to a lawyer who is familiar with - and specializes in - domestic asset protection trusts. A regular old trust set up by the family estate planning lawyer is probably not going to protect your assets. It may be good for estate planning, but that's it.

You are correct that it would be complicated for him/her to set up an asset protection trust for himself/herself.

However, it’s not difficult for his/her mother to provide for him/her in trust such that it will be protected against his/her creditors and spouses, and to be out of his l/her estate for estate tax purposes.

I agree with you for the most part, except for the general idea that trusts will keep assets out of the hands of creditors. Trust laws are state dependent, and unless the trusts are set up in a specific way - and often in very specific states - there will not necessarily be asset protection. The exception is the asset protection trust, which is expensive and complicated. I think a lot of people pay for complicated trusts and estate plans that are completely unnecessary because there is a lot of misinformation out there about how they work and what they actually do.

It's also disappointing to read all of these posts about pre-nups and not getting married. Maybe I am old school, but I think marriage is a partnership and there should be 100% trust, transparency, and commitment before going in. If you are single now and already thinking that you are going get a divorce or have a spouse that will try to take your assets, you are going into any future marriage with a completely wrong mindset.

[MikeG62]

...

"Mid seven figures" is a lot of money to most folks, but not enough that you are going to need complicated and expensive asset protection planning, especially if you aren't a high-profile individual or engaging in risky behaviors (either personal or professionally). If you are set on using a trust for asset protection, you need to talk to a lawyer who is familiar with - and specializes in - domestic asset protection trusts. A regular old trust set up by the family estate planning lawyer is probably not going to protect your assets. It may be good for estate planning, but that's it.

You are correct that it would be complicated for him/her to set up an asset protection trust for himself/herself.

However, it’s not difficult for his/her mother to provide for him/her in trust such that it will be protected against his/her creditors and spouses, and to be out of his l/her estate for estate tax purposes.

I agree with you for the most part, except for the general idea that trusts will keep assets out of the hands of creditors. Trust laws are state dependent, and unless the trusts are set up in a specific way - and often in very specific states - there will not necessarily be much (if any) asset protection. The exception is the asset protection trust, which is expensive and complicated. I think a lot of people pay for complicated trusts and estate plans that are completely unnecessary because there is a lot of misinformation out there about how they work and what they actually do.

In case you did not know, bsteiner is a nationally recognized expert on estate law.

https://www.kkwc.com/attorney/bruce-d-steiner/

We are fortunate that he posts on our forum from time to time.

[neverpanic]

I agree with you for the most part, except for the general idea that trusts will keep assets out of the hands of creditors. Trust laws are state dependent, and unless the trusts are set up in a specific way - and often in very specific states - there will not necessarily be asset protection. The exception is the asset protection trust, which is expensive and complicated. I think a lot of people pay for complicated trusts and estate plans that are completely unnecessary because there is a lot of misinformation out there about how they work and what they actually do.

I understand complicated, but how are you defining "expensive"? I'm only asking for a general range so that I can have a frame of reference.

It's also disappointing to read all of these posts about pre-nups and not getting married. Maybe I am old school, but I think marriage is a partnership and there should be 100% trust, transparency, and commitment before going in. If you are single now and already thinking that you are going get a divorce or have a spouse that will try to take your assets, you are going into any future marriage with a completely wrong mindset.

What I have learned and had reinforced in my brief time on this forum is that focusing on the numbers can be healthy and even necessary. Maybe the "other way" was the wrong mindset? OR maybe different mindsets for different people and situations.

In the case of OP, he's stated that he's fearful of losing assets to a 7-figure judgment. Multiple respondents have suggested it's unnecessary, but OP is the only one in OP's shoes. In the case of his inheritance, his mother is afraid he'd lose assets to a divorce. I am from the school that an inheritance is not earned by the heir. They have a duty to protect it that they don't have to personal assets which are put at risk in a marriage. That may sound pessimistic to some or to most, but reality is what it is.

[DiehardDisciple]

There's no easy answer to this. $7+ million verdicts are rare against individuals.

That is why people use rules of thumb. Some use net worth. Others buy the minimum, usually $1,000,000 and figure that should cover a high proportion of possible cases. Both are guesses. Might be right. Might be wrong.

If you know a friendly property and casualty actuary, ask them.

I do not know any actuaries, friendly or not. I might cover my full net worth that is not in trust. I live a simple, mindful life, but I worry about freak accidents.

I would advise you to NOT get married and live in sin. You’d be better off financially and not potentially be taken advantage of. Prenups are challenged by greedy spouses all the time.

Take my advice and don't get married it's not worth it.

OP, I hate to be that guy, but you're expressing a sincere fear of losing a significant lawsuit, suggesting you have far greater exposure than the average Joe. If that's the case, it's my humble opinion you should never get married.

Regarding your inheritance, in almost every state, it's going to be treated as separate property in the event of a future divorce. Where you could run into problems, however, is with commingling monies. But as long as the money trail is clean and separate from your marital assets (in other words, don't use funds from your inheritance to buy your marital home), you should be fine.

I'll just agree with those suggesting you avoid marriage. Children born out of wedlock no longer are stigmatized and there are few social sanctions remaining. While I am not supportive of the societal degradation that has taken place it has happened. Your assets are a valid reason for eschewing the exposure that marriage brings with it. You also may wish to learn about common law marriages and states that may sanction your assets even without a marriage proper taking place based on your behavior. Also learn about prenups and how they may fail and why, but please be aware they can be voided and often are.

This is all very pertinent because I am about to return to the dating scene at age 46 with
- no job;
- an eagerness to be in a relationship and maybe have kids while I still can (I'm a guy);
- minimal dating experience, probably the bottom 1% for my age, along with the fear that I going to prematurely marry someone since I have no clue how to build up a healthy-enough relationship - or end it - before marrying someone;
- $3.9 million in my name at the moment (not including future inheritance from mother that might be in trust);
- and a refusal to go back to work in a paying job until I can articulate to the best of my abilities a great peace concept of mine that I am working on and feel very passionately about. It was too difficult to work in a conventional job (former school teacher) and on this concept at the same time.

So, in a dating relationship (and a marriage if it comes to that), I am going to be funding my share of the expenses (and the housing) with money that was inherited and not earned during the relationship. Thus in a divorce, this money could rightfully be awarded to the ex.

I am not necessarily taking your advice, but I am looking at it from millimeters away.

OP,
A trust primarily protects assets from creditors, not necessarily from torts as that's the primary purpose of insurance.

Thank you for clarifying this. The difference is so slowly getting through to me. I don't have any creditors, but I worry about tort and divorce judgments. For torts, just freak accidents.

Run-of-the-mill trusts are vehicles for estate planning, NOT asset protection. Most big verdicts against individuals are for car accidents and professional malpractice, both of which can be insured against. You said you are not married, no kids, don't work, ride a bike everywhere, and rent an apartment. You seem like you are at a very low risk for being sued, so get an umbrella policy for $3-5m or so and you should be set. It's dirt cheap.

"Mid seven figures" is a lot of money to most folks, but not enough that you are going to need complicated and expensive asset protection planning, especially if you aren't a high-profile individual or engaging in risky behaviors (either personal or professionally). If you are set on using a trust for asset protection, you need to talk to a lawyer who is familiar with - and specializes in - domestic asset protection trusts. A regular old trust set up by the family estate planning lawyer is probably not going to protect your assets. It may be good for estate planning, but that's it.

Thank you for looking at all the details of my situation. Would DAPTs (domestic asset protection trusts) offer more asset protection in a divorce case than a run-of-the-mill trust, or does the greater asset protection in a DAPT only refer to more protection from other creditors who aren't your ex-spouse ?

The fact that insurance companies are so willing to write multi-million umbrella policies for so cheap shows you just how rare large (covered) judgments are against individuals. Remember that with some exceptions that aren't worth getting into here, umbrella is really just protecting you against claims for negligence (car wrecks, premises liability, etc.) and won't cover intentional torts and lawsuits for shady stuff you do in business.

This is a good point about the low costs of the premiums being an indicator of the frequency of high settlements, and it's these negligence claims I'm worried about.

Maybe I am old school, but I think marriage is a partnership and there should be 100% trust, transparency, and commitment before going in. If you are single now and already thinking that you are going get a divorce or have a spouse that will try to take your assets, you are going into any future marriage with a completely wrong mindset.

I am old-school too and a hopeful romantic. But I can be a naive people-pleaser and offer up 75% of the cake when someone just wants a slice, only for me to then realize too late that I made a terrible mistake. And I acknowledge I have emotional trust issues (and anxiety for which I take a medication).

My mother wants to finalize her estate plan before New Year's and wants to discuss with me whether or not I want my inheritance in trust. A lot of this depends on whether or not a pre-nup will be enough, which it sounds like it won't be, and maybe not even necessary if I have a trust.

But then I worry if my "run-of-the-mill trust" will be enough, and I have spent many hours in the last two months looking at those special trust states such as South Dakota, sifting for the most reasonably-priced trust companies there, and pricing out what the future fees might be. And after all this, it appears that I will still have to pay Pennsylvania income tax on such a trust as well the annual trustee fees.

I'm now sensing that the run-of-the-mill trust will be enough, a simple one with me as the sole trustee and my trusty investment advisor and tax-prep guy to help me. Just trying to sort through this before we meet with our trusts & estates lawyer, or at least before my mom does.

I've probably contradicted myself several times in this thread, and sure enough, in graduate school when the classmates gave each other joke awards at the end of the year, I got the award of "Best Debater ... with himself." But I would rather drive myself crazy over strategy now and be happy with my decision down the road, knowing that whatever happens, I gave it my best shot while I had a say.

The exception is the asset protection trust, which is expensive and complicated. I think a lot of people pay for complicated trusts and estate plans that are completely unnecessary because there is a lot of misinformation out there about how they work and what they actually do.

I understand complicated, but how are you defining "expensive"? I'm only asking for a general range so that I can have a frame of reference.

For a directed, non-discretionary trust holding only publicly-traded securities with a 3rd-party custodian (Schwab) and a 3rd-party flat-fee investment advisor whom I'm already using, a South Dakota trust company gave me the rough estimate of $7,500 per year for being an administrative trustee after a set-up fee of $2,500. It would be the same if the account was $2 m or $ 7 m. I am not sure how much my mother will leave in trust. The amount that I would get wouldn't be more than $7m in 2020 dollars.

I do not think that $7,500 figure includes tax-prep for the trust, but I am not sure. I did nor specify if all of the income would be paid out each year or not, and if the trust retains the income, there is that higher federal income-tax rate, which adds to my total cost.

This South Dakota trust company was one of three listed here on the Chambers and Partners website. There are apparently over 100 trust companies in South Dakota, and so I figured that if Chambers - an international-ranking firm for the law and finance professions - only mentioned these three in South Dakota, they (Chambers) must have a pretty good reason for doing so, and thus that is as close to an objective assessment of the best South Dakota trust companies I will find. https://chambers.com/guide/high-net-wor ... onId=13144

I had deduced from my readings that all things considered, South Dakota is a stronger situs than Nevada or Delaware. But there was a lot of mental hair-splitting to reach that conclusion.

This probably might not be worth it, but South Dakota trust statutes then offers the ability for an outside "trust protector" to oversee the work done by the trust company. My knowledge gets a bit hazy here, but see https://law.justia.com/codes/south-dako ... n-55-1b-6/ . I found this firm in Wyoming offering trust-protector services for $750 per year.. https://bespokeprotector.com/bespoke-se ... protector/

In the case of OP, he's stated that he's fearful of losing assets to a 7-figure judgment. Multiple respondents have suggested it's unnecessary, but OP is the only one in OP's shoes. In the case of his inheritance, his mother is afraid he'd lose assets to a divorce. I am from the school that an inheritance is not earned by the heir. They have a duty to protect it that they don't have to personal assets which are put at risk in a marriage. That may sound pessimistic to some or to most, but reality is what it is.

You nailed it. It's a relay race. My mom and her mom received this baton, and I want to make sure I run my leg and then hand it off in the same fashion.

[Lee_WSP]

Here’s how I advise people.

If the beneficiary doesn’t need to invade the principal to live off of, absolutely give it to them in an irrevocable spendthrift trust. The terms of such trust is where good lawyering comes into play.

[THY4373]

It's also disappointing to read all of these posts about pre-nups and not getting married. Maybe I am old school, but I think marriage is a partnership and there should be 100% trust, transparency, and commitment before going in. If you are single now and already thinking that you are going get a divorce or have a spouse that will try to take your assets, you are going into any future marriage with a completely wrong mindset.

Every married couple effectively has a prenup. If they haven't done their own, then the state effectively has one for them so I never got why folks get all worked up over prenups. Given the divorce rate in this country at best is probably running around 30% at least I think anybody who heads into marriage without at least thinking about what happens with a 30% or more probability is nuts. I also don't see how a prenup in anyway runs counter to partnership, trust, transparency and commitment. Not saying every couple should have a prenup, far from it but when one partner has significantly more premarital assets then absolutely they should at a minimum seek out some legal guidance to get a sense of what is possible and what the risks are.

[THY4373]

In the case of OP, he's stated that he's fearful of losing assets to a 7-figure judgment. Multiple respondents have suggested it's unnecessary, but OP is the only one in OP's shoes. In the case of his inheritance, his mother is afraid he'd lose assets to a divorce. I am from the school that an inheritance is not earned by the heir. They have a duty to protect it that they don't have to personal assets which are put at risk in a marriage. That may sound pessimistic to some or to most, but reality is what it is.

You nailed it. It's a relay race. My mom and her mom received this baton, and I want to make sure I run my leg and then hand it off in the same fashion.

+1 I stand to get a decent inheritance (nothing like OPs) but decent and my intent is to pass it along hopefully with compounding to my son. I see it as an intergenerational emergency fund. I'll use it only if I absolutely need to but otherwise I'll hold it in trust for later generations. Beyond the fact that I love my post marriage solo life this is the other reason I won't get remarried. I am not going to muddy the waters of what goes to my son upon my death.

[THY4373]

This is all very pertinent because I am about to return to the dating scene at age 46 with
- no job;
- an eagerness to be in a relationship and maybe have kids while I still can (I'm a guy);
- minimal dating experience, probably the bottom 1% for my age, along with the fear that I going to prematurely marry someone since I have no clue how to build up a healthy-enough relationship - or end it - before marrying someone;
- $3.9 million in my name at the moment (not including future inheritance from mother that might be in trust);
- and a refusal to go back to work in a paying job until I can articulate to the best of my abilities a great peace concept of mine that I am working on and feel very passionately about. It was too difficult to work in a conventional job (former school teacher) and on this concept at the same time.

So, in a dating relationship (and a marriage if it comes to that), I am going to be funding my share of the expenses (and the housing) with money that was inherited and not earned during the relationship. Thus in a divorce, this money could rightfully be awarded to the ex.

I am not necessarily taking your advice, but I am looking at it from millimeters away.

You have gotten to the ripe middle age of 46 with what appears to be minimal dating. While I fully support you experimenting with more serious relationships I just throw out perhaps you are single at heart? Society really pressures folks to get married, have kids and all that. So much so that folks just expect it is a part of being an adult. There are all these messages based on really bad science by the way that marriage makes you happier (it doesn't beyond a short honeymoon period), makes you healthier (wrong for women (single women are healthier than married women), accurate for men to an extent), etc. You may also want to consider if you aren't really a person who is happier single (look at the writings of Dr. Bella DePaulo for a good start on this). I was married for 16 years and I am much happier single. In retrospect it was obvious I should have remained single but I bought into all the messages society was throwing at me.

[usagi]

Duplicate

[usagi]

This is all very pertinent because I am about to return to the dating scene at age 46 with
- no job;
- an eagerness to be in a relationship and maybe have kids while I still can (I'm a guy);

O.P., sometimes it is good to look outside of yourself and consider the impact your desires have on others. You sound like a caring type of guy. My wife and I both had older parents. As children of older parents we would not recommend that as a planned event to anyone, Nor do we know any children of older parents who would have plan on having late life children. You can search around on the topic and you will find many articles both pro and con as this topic is not suitable for this forum. But I would urge you to research the topic and perhaps interview some people who are now 50 something and have older parent(s).

You have gotten to the ripe middle age of 46 with what appears to be minimal dating. While I fully support you experimenting with more serious relationships I just throw out perhaps you are single at heart? Society really pressures folks to get married, have kids and all that. So much so that folks just expect it is a part of being an adult. There are all these messages based on really bad science by the way that marriage makes you happier (it doesn't beyond a short honeymoon period), makes you healthier (wrong for women (single women are healthier than married women), accurate for men to an extent), etc. You may also want to consider if you aren't really a person who is happier single (look at the writings of Dr. Bella DePaulo for a good start on this). I was married for 16 years and I am much happier single. In retrospect it was obvious I should have remained single but I bought into all the messages society was throwing at me.

I hope the O.P. reflects on your words.

I often opine that you will never know the full range of emotional experiences a sentient being is capable of unless you get married and have your own biological children. Marriage and your own children force you to look beyond yourself and most people will find themselves doing things that their single or childless selves could never grasp themselves doing. This is particularly true for males. That being said, while it is a journey, note I never said you would be happier for having done it. It is a expansionary adventure but not necessarily an overall positive one. It has been a journey I would not trade for anything as I value how it made me grow as a person. However I cannot say it was a journey that improved the quality of my life or my overall happiness, it simply allowed me to understand the overall human condition and why some people make some of the choices they do.

O.P. you mention a project that is dear to you, in general marriage and family is incompatible with such aims as once you are married and have children your life if no longer free to be directed as you choose, for others have implicit claim on your time.

I hope my comments give you a framework to consider things in. Choose wisely the path you walk.

[DiehardDisciple]

If the beneficiary doesn’t need to invade the principal to live off of, absolutely give it to them in an irrevocable spendthrift trust. The terms of such trust is where good lawyering comes into play.

This is close to what I have been thinking recently - a trust that does not distribute its income that often and that minimizes its retained taxable income by focusing on investments that are either municipals, equities that only pay qualified dividends, or equities that don't pay any dividends at all.

You may also want to consider if you aren't really a person who is happier single (look at the writings of Dr. Bella DePaulo for a good start on this). I was married for 16 years and I am much happier single. In retrospect it was obvious I should have remained single but I bought into all the messages society was throwing at me.

Thanks to you, I went and read some of Dr. DePaulo's writings on the Psychology Today website. I found her concept of singlism to be interesting since inter-group prejudice is my field of research. I'll have to accuse my married friends of "singlism."

My issue is I tend to be OCD in researching all the possible blind spots to something before diving in, and it can appear that I simply don't want to dive in. But, no, that's not the case. I tend to be a neurotic people-pleaser when around others, and thus I struggle to prioritize my time. But in social isolation, I can be exceptionally shrewd with a genius IQ. So I am trying to tap into this now and note the most likely landmines that I will face once I do dive in. Sure, one can't map out all the landmines before entering the minefield, but we can intuit where a lot of them are.

As children of older parents we would not recommend that as a planned event to anyone, Nor do we know any children of older parents who would have plan on having late life children.

I often opine that you will never know the full range of emotional experiences a sentient being is capable of unless you get married and have your own biological children... (Marriage) is a expansionary adventure but not necessarily an overall positive one. It has been a journey I would not trade for anything as I value how it made me grow as a person. However I cannot say it was a journey that improved the quality of my life or my overall happiness, it simply allowed me to understand the overall human condition and why some people make some of the choices they do.

O.P. you mention a project that is dear to you, in general marriage and family is incompatible with such aims as once you are married and have children your life if no longer free to be directed as you choose, for others have implicit claim on your time.

I hope my comments give you a framework to consider things in. Choose wisely the path you walk.

This was a beautifully worded post. Your last sentence of "Choose wisely" made me think of that scene in "Indiana Jones and the Last Crusade." I sure don't want to be the one of whom people say, "he chose . . .

poorly."

There are no easy answers. The father of a friend in elementary school was 65 when my friend was born. He was embarrassed by his father's age, and it affected his self-esteem, but if his parents had not conceived him, my friend would never have been born, and his mother would never have had a child. Arguments can be made for both perspectives.

[Lexx]

usagi posted some wise words. Marriage and kids changes your entire life. And yes, once you have kids, your time will no longer be your own.

I got married (first and only time) at age 45 and we had kids at age 50. In fact we had triplet boys! They are now 9 yrs old and truly wonderful kids.

I ended up retiring early so that I could be with my kids more of the time.

I would definitely have a prenup, regardless of how well it might hold up. Make sure you have it done the right way, as others here have delineated.

Find a good estate planning lawyer who's certified in trust and estate planning. The legal landscape is varied and filled with minefields.

Finally, just because you're not married yet, doesn't mean you have to be married. Never settle. Never let the small brain take over the big brain. There are 7.5 billion people on earth. Surely at least one person out there is compatible with you. So don't sweat it.