Yesterday, while I was taping my weekly radio program, “The Free Money Radio Hour,” which can be heard on Saturday mornings at 8:00 am on WFEA in Manchester (1370 AM–99.9 FM), and WCAP in Lowell (980 AM), or on our podcast at, I mentioned a recent conversation I had about asset protection.

The issue had to do with a rather substantial inheritance being divvied up among four grown children. One of those children has a significant problem with the IRS, and another, a physician, has a big Medicare billing dispute. In both cases, the concern is any money inherited would get eaten up by government agencies, and the question is, how to protect the asset from seizure.

The solution they presented to me is to divide the inheritance among the other two grown children, with the understanding that they would make the money available to the “problem” beneficiaries when needed. In fact, this type of thinking and “planning” is more common than you might think and is one of the worst examples of the solution being worse than the problem. It also serves as an excellent illustration of how our own thinking is often the number-one threat to our retirement success.

There are several reasons beyond the obvious premise that giving up control and ownership of an asset to preserve that asset simply makes no sense. But getting a client to understand that can be a challenge.

I brought up the possibility of one of the “good” beneficiaries becoming a “problem” beneficiary themselves. For example, one of them runs afoul of the IRS, or gets divorced, or is involved in a lawsuit, where an outside entity lays claim to their assets, which now include a sibling’s assets. When I brought this up, I got eyerolls, pushback and complete denial that any such things could happen, even though such things had already happened to half their beneficiaries.

The problem is not that two of the beneficiaries were at risk. Rather the problem is how the couple was responding to that. It was incomprehensible to them that a) two of their children were already tainted by economic hardship, and b) that this could happen to another or both their other children. They viewed even the discussion as unpleasant, and perhaps as a vague attempt to impugn their family, when it was nothing of the kind.

This type of denial can run throughout the planning process. For example, even though four of the most damaging threats to any retirement are longevity risk, market risk, tax risk and fees, most people continue to keep most of their retirement funds in market-based, defined contribution accounts that do nothing to mitigate longevity, are known to have high, undisclosed fees, push all of ones taxes into retirement, and provide very few market-based tools to reduce risk. When people are so resistant to addressing things they know can hurt them, imagine how resistant they will be to things they can’t even fathom.

Donald Rumsfeld, secretary of defense under President George W. Bush, is famous for talking about the “known knowns,” the “known unknowns” and the “unknown unknowns.” A lawyer friend and colleague of mine who is now deceased liked to call them the “unimaginable unmentionables.” As a planner, it’s my job to help a client prepare, not just for the imaginable threats, but also and especially the unimaginable ones.

The interesting thing is, if you do a good job ameliorating the known knowns and unknowns, or those things you can imagine, you will also take care of the unimaginable.

In the case of this couple, I recommended a trust. By making the trust the beneficiary of their assets, they would be able to accomplish several objectives. First, they could keep the assets out of probate. Their original plan, of leaving it to the untainted beneficiaries, didn’t address probate at all.

For those not familiar with what probate does, it’s the process of divvying up an estate through the courts. Many people believe a will eliminates the need for probate, and that is false. In fact, the will is the document the probate court looks to when dividing assets, after all outstanding creditors are made whole.

The trust, by contrast, is not subject to probate, as in a trust there is no death to record. A trust, like a corporation, is an “artificial life,” or a proxy for the owner of the asset.

When you establish a revocable living trust and fund it with your assets, you place ownership of your assets into an entity that cannot die, unless dissolved. You can make changes any time you like, because you are the grantor and presumably the trustee of the trust. When you die, however, the trust becomes irrevocable, the contingent trustee(s) step in to manage the assets within the framework of the trust. And since you are the beneficiary of the asset but have no control over it at all, as long as the asset is held in the trust, no one, including the IRS or Medicare, can attach the trust over your personal debts. Only if the actual trust is in violation or once those assets actually pass to you, are they available to outside creditors.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, NH, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die and I’ll Tell You How Well You Can Live,” which deals with the problem that unknown lifespans create for retirement planning. It and his other books are available on