A recent Nevada Supreme Court case is helping Clark County residents become more aware of the need for financial planning. Trusts can be the asset protection tool that prevents children’s earnings from garnishment to satisfy their parents’ debts. It’s likely more difficult to get money back than it is to avoid the risk in the first place.
According to the case, each of three children in a Las Vegas family was the primary joint owner of a bank savings account. Each account listed their mother as secondary joint owner. Using their Social Security numbers, each child was listed as tax responsible. Funds in the accounts came from summer jobs, birthdays and scholarships.
Reports are that a $4.1 million judgment was entered against the parents when they defaulted on a loan due to loss of their business in the real estate crash. The bank holding the judgment took the $11,910 from the children’s accounts based on its assertion that the parents did not try to satisfy the judgment. A 2010 attempt to get the funds returned through the Clark County District Court resulted in the judge denying the claims without a hearing. The Nevada Supreme Court ruled that the judge’s order was erroneous because she had not held an evidentiary hearing on whether the garnishment was proper. According to the unanimous decision, the children should have had the opportunity to prove they owned the money, and it wasn’t subject to garnishment.
The Supreme Court noted that creditors may not garnish funds exclusively owned by a non-debtor. Hopeful that a hearing of the evidence will prove this was the case, the family is optimistic that the money will be returned to the children.
Considering this situation, it becomes clear how helpful it is to have a reliable plan in place before things go wrong. Protecting a family member’s assets through an irrevocable trust, for example, creates legally binding asset protection regardless of a change in family circumstances. Estate planning that includes trusts, life insurance and other financial tools can safeguard a family’s future.
Source:
Las Vegas Review-Journal, “Las Vegas children win court skirmish over garnished savings” Sean Whaley, Nov. 10, 2013