When it comes to finances, like many other aspects of life, some folks just do not understand that it is very difficult to both have your cake and eat it, too. The law and human nature are fairly clear and settled on this but clients still don’t seem to get it and are often asking for both complete control and total protection from every possible negative outcome.
Case in point, a wealthy married businessman who is involved in a variety of business ventures with various business associates. This client worries about many of the things we all worry about. High on the list are potential creditors of the business ventures whether lenders, vendors, the government, personal injury claimants and the whole spectrum of those who might pursue the businessman and his interests. Perhaps not surprisingly, also on the list is a fear of the impact of potential marital issues as well as what might happen after the businessman’s death insofar as a surviving spouse might be concerned. And then there is the estate plan and taxes and on and on.
Most of us understand that as long as we are in active control of a business and its assets, we are to some extent vulnerable to legitimate (and possibly illegitimate) claims and lawsuits as well as liability for taxes and the like. Insurance can help as can the use of entities and structures such as asset protection trusts that may limit the extent of potential liability. However, these cost money, greatly reduce control and may not be fully effective. The holding of title using tenancy by the entireties does provide creditor protection as long as the marriage lasts but divorce or death open the door for creditors.
Furthermore, upon the death of the businessman (in our case) there is no perfect way to protect the assets passing to a surviving spouse via tenancy by the entireties from the whims of the spouse. The spouse can buy, sell, mortgage, improve and otherwise treat the remaining property as her own.
The businessman here cannot maintain full control of the property during life and avoid creditors and certainly won’t be likely to effectively limit a surviving spouse’s choices after his death. Though he wants to do it, he cannot both have his cake and eat it.