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continued from page 26               “A spendthrift trust can be a valuable   decisions, and make unreasonable de-
         dynamics. Here are a few examples:  way to protect beneficiaries from spend-  mands, such as the hiring of his friends.
           To protect the income of a child  ing all of their inheritance,” says Arlene   Furthermore, if Frank remarries and
           Adam and Sylvia, who  own  all of   Cogen,  a  certified  financial  planner   then dies, his new spouse, a stranger
         the stock of ABC Company,  have a   and  philanthropic leadership  consul-  to the family, might end up owning a
         nine-year-old child named Jane. They   tant based in Portland, Oregon (www.  third of the business. And that person
         establish an irrevocable trust that des-  arlenecogen.com).  But  she  warns  that   might demand an exorbitant buyout to
         ignates Adam’s  brother Jason as the   it’s not a foolproof mechanism: “Bear in   avoid a lawsuit. “In this example, when
         trustee. In the event of the death of the   mind beneficiaries can be very creative   Deborah dies without any descendants,
         parents, Jason will run the enterprise.   when it comes to petitioning trustees   a trust can call for her interest to pass
         Jane,  the  trust’s  beneficiary,  will  re-  for health, education, maintenance and   on to her siblings or their descendants,”
         ceive stock dividends and distributions   support. This can create an adversary   says Scroggin.  “Trusts  often are used
         from any assets.                   relationship  between  the  beneficiary   to assure that business  interests are
           To avoid sibling disputes        and the trustee. One way around that   retained for the benefit of family mem-
           Andrew and Beth are concerned that   is to create a trust which provides the   bers rather than passing to outsiders.”
         when they die their children might   individual with a set income stream, so
         squabble about the family business as-  they cannot keep knocking on a trust-  STAY FLEXIBLE
         sets, putting the organization’s survival   ee’s door for money.”       The above scenarios  illustrate the
         at risk. Daughter Suzy has already said   To obviate  claims from an es-  flexibility  of  irrevocable  trusts.  They
         she wants to run the business, while her   tranged spouse             can  do all kinds  of things  for people
         brother John feels the business should   While Amy and Clark feel their son   who  are too young  to run  a business,
         be sold and the assets distributed.   Andy is skilled enough to run the fam-  have no interest in doing so, are inca-
           “A trust can designate that Suzy will   ily business, they are concerned about   pacitated, or need to be protected from
         run  the  business,  and that John  will   his marriage to an estranged spouse. In   their  own  damaging decision-making
         not be involved but will receive a cer-  the event of a divorce, will the spouse   habits. Trusts solve business problems
         tain amount of money monthly from   sue to obtain business assets?    by separating legal ownership and con-
         the trust,” says Nicole N. Middendorf,   Scroggin offers this solution: Amy   trol of a business from the enjoyment
         CEO of Prosperwell Financial, Plym-  and Clark  establish  a trust  that calls   of the business assets by beneficiaries.
         outh, Minn  (www.prosperwell.com).   for  Andy to be paid a salary for  his   Flexibility, though,  runs  both ways.
         “And the  trustee  will  make sure  the   work, while the equity of the business,   Attorneys advise against microman-
         provisions of the trust are carried out.”  along with any profits, remains in the      continued on page 30
           In a case like this one, says Middendorf,   trust for protection from lawsuits.  In
         a trust is especially valuable because it   the same way, a trust can protect busi-
         can mandate the disposition of assets at   ness assets from the claims of creditors
         a time when emotions might run high.   if the inheriting person is in debt.
         “Money often brings out greed,” she says.   To avoid claims arising from mul-
         “People can be tempted to make deci-  tiple marriages
         sions based on their own interests rather   Multiple  marriages  can  create  their
         than on what makes sense for the future   own problems. James wants to make
         of the company and the family.”    sure that if he dies his wife Mary re-
           To protect a victim of addiction  ceives income for life from the company
           Bart and Susan want to avoid leaving   dividends and asset distributions, so
         a sudden windfall to their son Chet, who   that she can take care of their children
         is struggling with a drug addiction. How   Betty and Jack. However, if Mary should
         can they make sure Chet is taken care   remarry and then later die, James wants
         of in the event of their deaths, while   to make sure the money from the busi-
         avoiding a waste of inherited assets?  ness  then  goes  directly  to  Betty  and
           “A trust can designate that Chet re-  Jack, and not to Mary’s new spouse or to
         ceive a certain amount of money every   that individual’s own children.
         month,” says Middendorf. “Or, to avoid   Again, a trust can mandate this more
         funding the addiction a trust can pay   complex asset distribution pattern. “The
         his  rent  so  he  always has  a roof  over   division  between  ownership  and  bene-
         his head. The trust could even mandate   fits can be helpful when people get mar-
         that he pass a drug test to receive his   ried more than once and have children
         monthly payment.” A similar arrange-  from multiple spouses,” says Sampson.
         ment can also help out when the ben-  To avoid claims arising from a
         eficiary might have a mental disability.  childless marriage
           To control a spendthrift           Harris and Marge have three children
           Some people are just bad with mon-  named  Deborah,  Francine  and  Bart.
         ey. Henry and Ida are afraid that their   Deborah  is  married to a man named
         daughter Beverly will spend her inher-  Frank  but  has no  children and is not
         itance on fancy cars and travel. That’s   expected to. Harris and Marge are con-
         why they decide to set up a “spendthrift   cerned that if Deborah is given some
         trust” that will release funds only for   of the equity and then dies, the equity
         expenses related to health, education,   will pass on to Frank, a nonfamily per-
         maintenance and support.           son who may try to dictate business

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