Wealth Preservation Trusts
Perhaps one of the most overlooked aspects of estate tax and asset protection planning is that an inheritance or gift received in trust rather than received directly by the beneficiary offers substantial tax and non tax benefits. Many traditional estate and trust attorneys concentrate only on the tax benefits of trusts and planning. A creative attorney who is aware of the non tax uses of trusts uses innovative drafting techniques to ensure that the beneficiary is able to take advantage of all of these tax and non tax benefits, while at the same time have the greatest control over the assets in his trust as possible (of course, there are times when it is not appropriate to give a beneficiary control over his inheritance; in this event, the trust may be drafted to limit a beneficiaries control). I call this trust a “Wealth Preservation Trust,” because it ensures that a family’s wealth will be preserved from generation to generation to the maximum extent possible. The Wealth Preservation Trust allows a beneficiary to
Taxes, creditors and divorced spouses each may reduce a beneficiary’s inheritance. An inheritance received in trust is often protected from these reductions to a greater extent than if the inheritance were received directly. First, a trust may be used to achieve substantial estate and generation skipping tax savings. For example, if a trust is exempt from the estate and generation skipping tax, assets may pass to children, grandchildren and subsequent generations without being subject to tax. On the other hand, an inheritance that is not in an estate and generation skipping tax exempt trust will be subject to a combined tax of up to 75% when the inheritance ultimately passes to children and then to grandchildren. Second, assets inherited in trust are generally not subject to the claims of creditors of the beneficiary. For example, if the beneficiary is a professional, assets inherited in trust may be protected from a potential malpractice liability. If the beneficiary is a businessman, assets held in trust may be protected from seizure if the beneficiary personally guarantees business loans. Third, assets inherited in trust are usually not marital property and are not subject to claims of a divorced spouse. The Wealth Preservation Trust insulates the inheritance from these reductions.
The Wealth Preservation Trust avoids the hazards of outright ownership of assets and the restrictions and controls that are commonly present in traditional trusts. A traditional trust for an adult beneficiary typically provides that the beneficiary receives income from the trust each year, the beneficiary may receive principal from the trust according to certain defined standards, and the beneficiary receives the assets in the trust at certain specified ages, such as one half of the assets at age 30, and the remainder of the assets at age 35. The Wealth Preservation Trust is a discretionary trust. The trustee may distribute income and principal to the beneficiary and his family at any time. The trust continues for the beneficiary’s lifetime, and thereafter for his descendants. The beneficiary is given control over his trust at a given age, rather than receiving the assets in the trust.
- Manage his inheritance
- Use his inheritance for his benefit and the benefit of his family
- Control the ultimate disposition of the assets upon his death
- Protect the assets from his creditors and achieve maximum tax savings
Taxes, creditors and divorced spouses each may reduce a beneficiary’s inheritance. An inheritance received in trust is often protected from these reductions to a greater extent than if the inheritance were received directly. First, a trust may be used to achieve substantial estate and generation skipping tax savings. For example, if a trust is exempt from the estate and generation skipping tax, assets may pass to children, grandchildren and subsequent generations without being subject to tax. On the other hand, an inheritance that is not in an estate and generation skipping tax exempt trust will be subject to a combined tax of up to 75% when the inheritance ultimately passes to children and then to grandchildren. Second, assets inherited in trust are generally not subject to the claims of creditors of the beneficiary. For example, if the beneficiary is a professional, assets inherited in trust may be protected from a potential malpractice liability. If the beneficiary is a businessman, assets held in trust may be protected from seizure if the beneficiary personally guarantees business loans. Third, assets inherited in trust are usually not marital property and are not subject to claims of a divorced spouse. The Wealth Preservation Trust insulates the inheritance from these reductions.
The Wealth Preservation Trust avoids the hazards of outright ownership of assets and the restrictions and controls that are commonly present in traditional trusts. A traditional trust for an adult beneficiary typically provides that the beneficiary receives income from the trust each year, the beneficiary may receive principal from the trust according to certain defined standards, and the beneficiary receives the assets in the trust at certain specified ages, such as one half of the assets at age 30, and the remainder of the assets at age 35. The Wealth Preservation Trust is a discretionary trust. The trustee may distribute income and principal to the beneficiary and his family at any time. The trust continues for the beneficiary’s lifetime, and thereafter for his descendants. The beneficiary is given control over his trust at a given age, rather than receiving the assets in the trust.