Many of you responded to my suggestion in last month’s Update that you let me know if you received a letter from a law firm calling itself “Arizona’s premier estate planning law firm.”  That letter claimed that most people’s estate planning documents “fail them at almost every turn,” and offered a free seminar to tell you “the reasons why you should be concerned about the validity of your Living Trust.”

The letter contains a list of questions intended to demonstrate “why your estate plan may not work.”  Let’s take a closer look at those questions and whether they really point to catastrophic deficiencies in most living trusts.

“What if your surviving spouse gets remarried?”  Sure, this is a legitimate concern for some people.  But what the “premier firm” doesn’t tell you when they ask this question is that dealing with this concern, as is the case with most of the questions they raise, involves some hard choices.  There is no quick fix.

“What about lawsuits and creditors’ claims?”  I presume they are referring to lawsuits and creditors claims that arise after you have passed away, because unless they know something I don’t, a standard living trust cannot shield your assets from your creditors.  The only way to do that is to undertake much more involved, much more expensive planning that will require that you relinquish control of your assets or move them offshore.

As for lawsuits and creditors’ claims that arise after you have passed away, there is a way to at least partially protect the interests of your beneficiaries.  It’s called a spendthrift trust.  Again, however, there are hard choices to be made.  Using a spendthrift trust will place serious limitations on what your beneficiaries can do with the assets you are leaving to them.  Is that what you want, or not?

“How about nursing home expenses?”  My advice on dealing with this concern is the same as my advice on how to deal with any insurable risk: buy as much insurance as you can reasonably afford, in this case long term care insurance.

“What if your kids get divorced or get sued?”  The “get sued” part is a repeat of the “lawsuits and creditors’ claims” question above. The “premier firm” believes that giving your assets outright to your children “is a huge mistake.”  They believe it so much that they put those words in bold letters.  Is it really a “huge mistake?”  It may be, if your children have a history of poor financial or marital decisions.  Again, however, the “fix,” i.e., a spendthrift trust, isn’t an easy choice.  It will limit the ability of your children to use the assets you are leaving to them.

As for the “get divorced” part, sure, you can make sure that your untrustworthy child-in-law can’t get their grubby paws on your money, at least not until your child gets a distribution from their spendthrift trust.  After that, you can’t control what happens.

I feel compelled to insert a personal note here.  The entire discussion of these issues in the “premier firm’s” letter is indicative of what I see as an unfortunate trend toward treating your children like children, no matter what their age.  Yes, in some cases it is, unfortunately, probably necessary to try to protect your children from the consequences of their own poor choices.  And yes, it is prudent (and customary) to include in a living trust a provision to prevent the possibility that an 18-year-old will get handed a check for a million dollars.  I think there is great harm, however, in the trend toward assuming that your adult children are irresponsible, cannot be trusted, and must not be put in a position of making their own choices (or at least must be protected from the consequences of those choices as much as possible).

“What about a child or grandchild with special needs?”  This is an obviously legitimate concern which any thorough estate planner will ask about and provide for if appropriate.  Even here there may be difficult choices, however, since one way to deal with the beneficiary who has special needs is to limit what they receive from you, so as to not disqualify them from continuing to receive public benefits.  In a number of cases I have had parents decide that they would rather have their entire estate get spent on a son or daughter’s care than place limits on what the son or daughter can receive.

So, is “everything you thought you knew about living trusts… dead wrong?”  I don’t think so.  I think that the questions asked in the “premier firm’s” letter are legitimate concerns, but there are rarely right or wrong answers.  If those questions apply to your situation, there will be competing considerations that must be balanced to come up with the solution that best meets your needs and desires.  Many law firms (including this one) have careful, competent attorneys who can help you find the best solution for you.