When you pass away, you may with to leave a gifts to charities or financial security for your beneficiaries. Unfortunately, it can sometimes feel overwhelming to figure out how you can make the most of your assets and minimize your estate taxes so that you have more to give. An asset protection trust may be just the thing that you need to finish your financial plan.
Learn more about these trusts, how to set up an asset protection trust, and how you can leverage their many benefits in this quick guide.
What is an Asset Protection Trust?
Before diving into the specifics of how you can set up a tax-advantaged account that benefits your beneficiaries, it helps to have clear terminology for what an asset protection trust is. At its core, an asset protection trust is a type of irrevocable trust that cannot be changed once the paperwork is in place unless you have the express permission of the beneficiary.
As asset protection trust is a way to plan your estate and leave a legacy for beneficiaries, whether they are family, friends, or charity.
An asset protection trust’s main benefit is exactly what the name implies: it protects your assets. The beneficiaries that you designate cannot lose the contents of the trust to creditors, lawsuits, or by judgments against the estate.
If you are seeking assurance that your beneficiaries will inherit the legacy that you worked so hard to gain, an asset protection trust can be a smart move.
Types of Asset Protection Trusts
There are two primary types of asset protection trusts that you will need to consider before you settle on how to set up your account. You can either select a domestic or a foreign trust, and here are a few guidelines to help you decide which is the right fit for you.
Domestic asset protection trusts might be one option for you to protect your assets for the future. They tend to be less expensive to set up and administer as they are typically less complex. Still, it may not be an option for you, as not all states permit this type of trust.
In many cases, those who want to set up an asset protection trust stateside will face more state-specific restrictions.
If you live in a state that does not permit domestic asset protection trusts, then you may be left with no alternative but a foreign asset protection trust (sometimes also known as offshore trusts). This type of trust can work for those who want a greater degree of privacy for their estate, but it comes at a cost as these trusts tend to be more expensive and complex to set up and fund.
How to Set Up an Asset Protection Trust
When it comes to setting up an asset protection trust, we at Magellan Planning Group can assist*, as we understand what it takes to set one up. Your part in the matter will be relatively simple, as we do the heavy lifting for you. Asset Protection Trusts have to satisfy multiple requirements to be valid, so it is important to work with an experienced estate planning attorney to make sure the Trust is established properly.
Once you have decided which types of asset protection trust to create, the next step is selecting a trustee who will manage your trust and name your beneficiaries. You can dictate how you want your selected trustee to handle your trust, including how you want the payments spaced out and even what they can be used for.
With this piece in place, you will then transfer assets over to fund the trust. You do not have to fund it with cash only. Instead, you can also include stocks, companies, real estate, vehicles, planes, and more. Just remember that once something has been added to the trust, it cannot be removed. Be absolutely sure you can part with it.
Benefits of an Asset Protection Trust
There are plenty of reasons why you might choose an asset protection trust to help shield your assets for the future use of your beneficiaries. From tax benefits to the protection of your wealth for the generations to come, you will want to consider how asset protection trusts can work toward your goals.
Major Tax Benefits
Trusts, whether they are asset protection trusts or charitable remainder trusts, come with tax benefits. When you fund an irrevocable trust, you actually remove these taxable assets directly from your estate. For those individuals with a high net worth and a large estate, this is one way of protecting wealth upon your death as it will be excluded from the estate.
Protection for Beneficiaries
The protection that this trust offers to your beneficiaries is also worth noting. If you are concerned that your beneficiaries may spend irresponsibly or end up in legal trouble, asset protection trusts can help alleviate these concerns. Creditors will not be able to tap into the trust, and it cannot be depleted through court settlements, either.
Control over Distributions
In a similar vein, you can also specify exactly how payments will be distributed and when, making it less likely that your beneficiaries will spend irresponsibly when they gain access to your estate. For example, you can use sprinkled distributions to prevent them from getting the lump sum of your estate all at once.
There is one thing to keep in mind that is a disadvantage to this type of trust: you cannot move transferred assets or funds out once committed. Irrevocable trusts cannot be amended after assets have funded it.
With Magellan, Your Goals are Our Goals
Estate planning requires a great deal of strategy to minimize your taxes, as well as to make the most of the wealth that you have earned and want to leave for your beneficiaries. Magellan Planning Group can assist through the process allowing you to take advantage of our expertise in tax planning, estate planning, and even general financial planning.
Are you ready to protect your financial future? Contact Magellan today to discuss your estate plan and how you can strategize for a brighter financial future.
*Please note that neither Cetera Advisor Networks LLC nor any of its agents or representatives give legal or tax advice. For complete details, consult with your tax advisor or attorney.