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Common client questions: What happens when I die, when my spouse dies?

June 29, 2016

The core of every truly effective asset protection plan is an offshore asset protection trust. Trusts are a common estate planning tool, and their origin has been traced back to the 12th century crusades. English knights left their estates with a caretaker, who held the property “in trust” for the knight, or should he not return, the knight’s family. While an offshore asset protection trust is anything but simple, the basic premise remains the same today.

For our clients, the offshore trust becomes the core of their estate plan.

What are settlors, trustees, beneficiaries, dispositive provisions?

Understanding the operations of a trust after the client’s passing requires familiarity with certain terms.

A settlor is a person that creates and funds a trust (the settlor is our client). The settlor can be an individual, a married couple, a group of people (as is the case with the DRR Group Trust), a business (as is the case with the DRR Entity Trust), or a retirement plan (as the case the with DRR Retirement Trust).

A trustee is the person that holds and administers the trust property in accordance with the written instructions of the settlor (see, dispositive provisions, below). Like the settlor, the trustee can also be an individual, a group of people, or an entity. For offshore planning, a corporate trust company is utilized.

A beneficiary is the person that can receive funds, or “distributions”, from the trust. Common beneficiaries include the settlor during his/her lifetime, the settlors’ children, relatives, and friends, as well as designated charities.

The dispositive provisions are the written directions in the trust document on how the trustee must administer the trust both during the settlor’s lifetime and after his/her death. Dispositive provisions can be changed during the life of the settlor to reflect updated wishes and requirements.

I am not married. What happens when I die?

When a trust is settled by one person, the trustee is bound to follow the dispositive provisions upon the death of the sole settlor. Assets are divided among the various beneficiaries in accordance with the dispositive provisions.

We are married. What happens when we die?

Similar to a trust settled by a single person, the trustee is required to follow the written instructions of each settlor. The trust has built-in mechanisms to handle the death of one settlor, the simultaneous death of both settlors, and the needs of the surviving settlor.

To take advantage of available federal estate tax benefits, a trust settled by a married couple is actually two separate trusts (each called a sub-trust) under one document. While both settlors are alive, the trustee can manage the funds in one “pot”. Upon the death of one settlor, the funds are divided. The trustee is then required to administer the trust as two separate sub-trusts with two separate groups of assets.

The sub-trust settled by the deceased spouse is administered by the trustee according to the sub-trust’s dispositive provisions.

The surviving spouse may continue to request distributions from his/her sub-trust, and depending on the dispositive provisions of the deceased spouse, may also receive distributions from the other sub-trust. The surviving spouse may request changes to his/her sub-trust’s dispositive provisions, and may add additional property to his/her sub-trust. 

How are the assets divided among heirs?

Dispositive provisions are customized to the wishes of the settlor and typically include a division of the assets among the settlor’s family. Each client has different requests of how assets are divided, and we work closely with the client to ensure their wishes are accurately reflected in the trust document.

The trust document provides for the possibilities of the trustee making immediate, delayed, or recurring payments to varied beneficiaries based on their age, performance of certain requests, or legal competency. Unlike a domestic trust, the trustee may also exercise discretion to withhold distributions if the beneficiary is under duress from any court or creditor, thereby keeping the funds protected offshore. The trust can continue to exist during the life of the beneficiaries. Each beneficiary’s portion may be distributed to a new trust settled by them, providing for the continued protection of the funds through generations.

If you have more questions on how offshore asset protection planning can be utilized for effective estate planning, contact attorneys Howard Rosen and Patricia Donlevy-Rosen.