How do trusts protect assets

A trust is a tool for dividing ownership of property between legal title and beneficial enjoyment. The holder of legal title is called the trustee and is responsible for managing the property based on the terms of the trust for the benefit of the named beneficiary of the trust. Some trusts are revocable, because you can change your mind at any time about who the beneficiaries are, or you can take the property out of the trust entirely. Trusts that don't allow you to change the terms once the trust has been established are irrevocable trusts.

The distinction between revocable versus irrevocable trusts is very important, since some types of trusts won't work if you set them up with the wrong kind of revocability. An asset protection trust is designed to protect your money from creditors.

You transfer ownership of cash or property to a trustee, who manages the cash and property for you. The idea behind the trust is that because the property is now owned by someone else, your creditors arguably can't arrange to have those assets seized. These trusts must be irrevocable to work, so make sure that you have yours set up exactly the way you want before you pull the trigger.

Not all states allow asset protection trusts. Also, it's important to transfer the property to the trust before you run into creditor trouble, or the transfer may be disallowed in court. You can see a list of the 16 states that currently allow asset protection trusts here. A bypass trust is designed to help married couples avoid unnecessary estate tax liability. Each spouse sets up their estate planning documents to leave property up to the maximum allowed under the estate tax exclusion to the bypass trust, then bequeaths the rest of what they own to the other spouse.

Property left to one's spouse qualifies for a marital deduction to the estate tax, so when one spouse dies, the other can get the bequeathed property tax-free. Meanwhile, the property left to the trust is covered by the estate tax exclusion, but it's also not subject to estate tax in the surviving spouse's estate, so as the property increases in value, it can safely grow above the exclusion amount without incurring potential estate tax at the death of the surviving spouse.

The terms of the bypass trust generally allow the surviving spouse to get support from the trust, although it's typically better to spend down other assets that will be included in the surviving spouse's estate.

This offers protection not only to the person setting up the Trust, but also for beneficiaries in the future. In general terms, a Revocable Trust simply means the document can be changed any time you like, as often as you see fit. Irrevocable, on the other hand, cannot be easily altered, if it can be changed at all. That said, in order to truly provide effective asset protection, a Trust must be irrevocable. Check your local state to know if it recognizes this Trust type.

Asset Protection Trusts in Estate Plans are generally not cheap. There are of course pros and cons you should be aware of before you decide to use an APT. If your goal is to have more iron-clad asset protection than what some other forms of Estate Plans offer, an Asset Protection Trust may be worth looking into. Reach out to us today or Chat with a live member support representative! For Private clients News and insights How does a family trust protect your assets?

How does a family trust protect your assets? What is a trust? How does a family trust work? A family trust is a trust that is set up for the benefit of family members.

Common reasons for setting up a family trust include: Setting funds aside for future generations. Passing assets on to a child or grandchild, but not until they are older. Protecting assets when entering into a marriage. Ensuring that a spouse can benefit from family assets for the rest of their life before assets are passed on to children.

Passing assets on to family members tax-efficiently. Protecting assets against claims from creditors when self-employed. The main types of trusts used for family trusts are: Bare trusts : these are simple trusts in which all trust assets are given to the beneficiary as long as they are aged 18 or over in England and Wales , or 16 and above in Scotland. Bare trusts are often used to hold assets for children.

This type of trust is often used in wills in order to give a spouse an income for life. Discretionary trusts: these are more flexible trusts in which the trustee has discretion over the distributions of the trust. Discretion must be exercised in accordance with the terms of the trust deed, however, it is up to the trustee to determine the timing, size, and nature of the distributions.

This form of trust can be effective if you are uncertain about the needs of your beneficiaries. Mixed trusts : this form of trust combines elements of different types of trusts.