What to Do if a Loved One is Indicted… How Estate Planning Can Help

On Friday, the first round of indictments were handed out in the Russia Investigation and arrests could come as early as today.

And while we don’t yet know who the indictments are for, and who may be arrested, we do know one thing… estate planning could help the families of those arrested in these situations.

Update: Paul Manafort and Rick Gates were ordered to surrender to the Justice Department today.

Estate Planning Can Block a Loved One From Serving as Trustee

Whenever I’m meeting with clients for a planning session, I always ask about when loved ones should receive access to their money. And by “loved ones”, we are typically referring to children.

Most people do not want their children receiving access to an inheritance as soon as they turn 18. They want to make sure their children are financially mature and able to manage the responsibility of their inheritance before they are permitted to manage their trust account.

Related: Why a Revocable Living Trust is a Great Estate Planning Tool

As an alternative, most people will include a provision in their trust agreement that allows their children to become co-trustees with another responsible adult at a certain age, and then take over as sole-trustee several years later.

But what if that young adult reaches the age where they are permitted to take over management of their trust account, but they are the defendant in a lawsuit or have been indicted or have a drug addiction or worse?

In those situations, we typically include what is commonly referred to as a “blocking provisions” which say that the original trustee of the trust can “block” the child from becoming a trustee of the trust or even having access to those funds.

By doing this, we are able to protect those funds from any potential lawsuit, bankruptcy or divorce, or even from being used to pay for a drug habit.

An Irrevocable Trust can Be Used as an Asset Protection Tool

I’m sure the “blocking provisions” sound great to protect your children from themselves someday, but what about you or your spouse?

What if you were a high-level government official who knew that you were under investigation and facing an indictment?

Nobody ever wants to find themselves in that situation, as conviction rates when the government obtains an indictment exceed 90%. But there are some in Washington that are looking at a situation like this right now, and have been for many months.

What could they do to protect their assets, their home, their investments, and their legacy for their children from mounting legal fees and maybe even government forfeiture?

An irrevocable trust is a powerful planning tool in these situations, as the irrevocable nature of the trust can limit the potential reach of creditors (including possibly the government) of the person who created the trust.

When you set up an “irrevocable” trust, you can’t change your mind and retrieve your assets from the trusts sometime later. (Which distinguishes this from a “revocable” trust in which you can terminate the trust whenever you want).

With an irrevocable trust, once you transfer assets into the trust, you no longer have any power to change the terms of the trust or use the trust assets except as outlined in the trust agreement.

The only exception to this would be in the case of fraud – but if you lawfully obtained your assets and placed them into the trust then, generally speaking, your creditors cannot reach those assets so long as you give up complete control over the trust.

You could retain an interest in the trust (typically an income interest) or perhaps the power to change the terms of the trust or the disposition of the trust property. But by doing so, you will allow your creditors to reach the trust assets to the extent of your retained trust interest.

So What are the Folks in Washington Doing Right Now?

Anyone at a high level that was closely tied to the Trump campaign, such as Mike Flynn or Paul Manafort, are probably hoping and praying that their names are not listed in those indictments.

But if they are hopefully, they have already taken the steps to protect what assets they have through proper estate planning.