Protect Your Family From Wealth’s Dark Side With a Lifetime Asset Protection Trust
When you create your estate plan, it is unthinkable that one of your adult children would ever use their inheritance to bankroll a cult. Yet that’s exactly what 40-year-old Clare Bronfman, heiress to the multi-billion-dollar Seagram’s fortune, did with hers. Although many of us will never have the type of wealth that Clare Bronfman has, her story of using her inheritance illustrates how a lifetime asset protection trust could be used to protect children from the dark side of wealth.
Clare was led down a dark path that seems almost too outlandish to be true. In May, Clare pled guilty to federal felony charges of harboring an illegal alien and fraudulent use of a deceased person’s identity. The charges stem from her role as an executive board member of Nxivm (pronounced NEX-ee-um). Federal prosecutors described Nxvim as a “deeply manipulative pyramid scheme.” There are other allegations that Nxvivm forced some of its members to endure slave-like conditions and even have sex with the group’s leader and founder, Keith Raniere.
Following Clare’s plea, Raniere, 58, was found guilty in June on seven felony counts, including racketeering and sex trafficking. He faces up to life in prison when he’s sentenced on September 25. His conviction comes following a six-week trial that exposed the world to Nxivm’s sordid inner workings and put wealth’s dark side on full display.
Clare’s sad story highlights just how risky it can be to leave money outright to your children. Indeed, bestowing significant wealth upon your children or grandchildren can turn out to be a blessing—or it can just as easily be a curse.
Fortunately, there are proactive estate planning solutions designed to safeguard your adult children from such scenarios. And these planning protections aren’t just for the extraordinarily rich like Clare’s family. A relatively modest inheritance can lead to similar issues. Regardless of your asset profile, we can help you put the proper planning vehicles in place to help prevent your heirs from falling prey to wealth’s darkest temptations—or even losing their inheritance to simple mistakes. Indeed, the planning strategies we describe here can safeguard your child’s inheritance from being depleted out by other, less devious events, such as a divorce, a catastrophic medical expense, or even a simple accident. You just never know what life has in store for your heirs, and our planning protections can ensure their inheritance is protected from practically all potential threats—even those you could never possibly imagine.
From self-help to self-sabotage
Clare joined Nxivm, which was billed as a life-coaching program, in 2002 at age 23. She reportedly joined the group in hopes that its mentoring might help her fulfill her dream of making the U.S. Olympic equestrian team. In large part due to her substantial financial contributions, Clare quickly rose to the top ranks of the organization and became increasingly close with Raniere.
According to a recent Forbes article, Raniere took advantage of Clare’s estranged relationship with her elderly father, Edgar Bronfman Sr. Raniere allegedly manipulated her into believing that her family’s money was “evil and that she had to purify it by spending it on ethical things like Nxivm.” You can read the Forbes article here: https://www.forbes.com/sites/willyakowicz/2019/05/31/from-heiress-to-felon-how-clare-bronfman-wound-up-in-cult-like-group-nxivm/#50e1010a3ecf
Raniere constantly reminded Clare that the Seagram’s fortune was made selling alcohol. He further reminded her that her grandfather, Samuel Bronfman, earned millions by conveniently setting up his Canadian whiskey distillery directly on the U.S.-Canada border during Prohibition.
Under the spell of Raniere’s devious manipulation, Clare reportedly came to view her financial support of Nxivm as a way to make up for her family’s past. It is believed that Clare paid roughly $150 million, of her inheritance, into Nxivm. Clare’s inheritance was on funding Raniere’s failed investment schemes in real estate and commodities.
Clare also used her inheritance to sue Nxivm’s detractors. She reportedly spent approximately $50 million on lawsuits against journalists, ex-girlfriends of Raniere, and others who were critical of the group.
Big money can cause big problems
While we don’t know the exact age Clare came into her money or just how much of it she had access to, her total inheritance was valued at an estimated $200 million. The inheritance was reportedly held in a trust. However, since she funneled roughly three-fourths of that sum into Nxivm in a period 15 years, it’s likely her money was disbursed outright with little or no direction on how it could be used.
Though her case is extreme, Clare is certainly not the first wealthy person to be negatively impacted by inheriting too much money at a young age—nor will she be the last. Similar cases occur quite often, and no matter how well adjusted your children or grandchildren may seem, there’s just no way to accurately predict how their inheritance will affect them.
One unique planning vehicle designed to prevent the potential perils of outright distributions is a Lifetime Asset Protection Trust (LAPT). These trusts last for the lifetime of their respective beneficiaries, and provide them with a unique and priceless gift. With an LAPT, for instance, the beneficiary can use and invest the trust assets, yet at the same time, the trust offers airtight asset protection from unexpected life events, such as divorce or serious debt, which have the potential to wipe out their inheritance.
Exercise your discretion
When drafted properly, an LAPT can be used to educate your beneficiary on how to handle their inheritance. This is done by allowing the beneficiary to become a co-trustee with someone you’ve named at a specific age or stage of life, and then the beneficiary can become the sole trustee later in life, once he or she has been properly educated and are ready to take over.
The LAPT is discretionary, which means that the trust would not only protect your heir from outside threats, like creditors and ex-spouses, but also from their own mistakes. The trustee you name holds the trust’s assets upon your death. This gives the person you choose the power to distribute its assets to the beneficiary at their discretion, rather than requiring him or her to release the assets in more structured ways, such as in staggered distributions at certain ages.
Your direction and guidance
Many of our clients choose to provide non-binding guidelines directing the trustee on how the client would choose to make distributions in up to 10 different scenarios, such as for the purchase of a home, a wedding, the start of a business, and/or travel. Some clients choose to provide guidelines around how they would make investment decisions, as well.
This ensures that future trustees will be aware of your values when determining whether to make distributions, as well as how to invest trust assets, rather than operating in a vacuum of information, which often leads to problems down the road. In many cases, the beneficiary may eventually become the trustee him or herself, and then resign and appoint an independent trustee, if needed, for asset-protection purposes.
Don’t take any chances
You might think that something as depraved as what happened to Clare Bronfman would never happen to your children or grandchildren—but don’t be so sure. It can, and does, happen to even the most successful and upstanding among us. Having too much money at a young age is a Pandora’s Box, so it’s best not to open it.
Yet even if your heirs never experience a threat as scary as Nxivm and Raniere, their inheritance is still vulnerable to more common threats like divorce, poor spending, and sudden accident or illness.
Contact us at 505-373-3319 to schedule a free fifteen minute call where we can discuss whether we might be able to help you with planning for the future. If you have any concerns about protecting your children, either adult or minors, and their inheritances, I urge you to schedule either the 15 minute call or the Family Wealth Planning Session. I would love to work with you and your family.