Lifetime Trusts

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Scott Roberts, Director of Estate Planning

 

If I had to pick the most common area that is ripe for improvement in many of my clients’ estate plans, it would be the terms by which assets are left to children and other heirs. More often than not, documents direct assets to be left to heirs in trust only until they reach a certain age, frequently staggering the distribution over a period of years such as one third at age 25, one third at age 30 and the balance at age 35. For most people, such a distribution schedule is perfectly adequate because the amount of assets is not substantial. However, when the amounts to be divided and distributed among heirs are hundreds of thousands, millions, tens of millions or more, a different approach is recommended, the benefits of which include increased asset protection and potentially significant future estate tax savings.

Specifically, instead of directing the assets to be distributed outright at certain ages, consideration should be given to leaving the assets in trust for the entire lifetime of the beneficiary, and beyond. Then, at the ages when assets would otherwise be distributed outright, the beneficiary can be given some measure of control. For example, they can become co-trustee at a certain age and even sole trustee of their trust.

When directing that a beneficiary can become trustee of their own trust, it is important to limit the discretionary distributions to the “ascertainable standard” which allows for distributions for “health, education, maintenance and support.”  Following that language, and allocating the appropriate amount of the decedent’s generation-skipping transfer tax (GST) exemption, should prevent some or all of the corpus of the trust from being taxable in the beneficiary’s estate, potentially saving up to millions of dollars of estate taxes. Fortunately, the ascertainable standard is sufficiently broad to allow beneficiary/trustees the type of control and beneficial access that clients typically wish to give – funds to start a business, help with bills or buy a house, but not the ability to gamble it away in Las Vegas.

Lifetime trusts also provide asset protection for beneficiaries in the event of a lawsuit or divorce because, technically, the beneficiary does not “own” the assets, the trust does. This protection is arguably stronger if the beneficiary is not a co-trustee or sole trustee, although the Florida state statute concerning “spendthrift provisions” in trusts does protect a beneficiary’s interest.  In any case, it is safe to assume that assets in trust are better protected than those left outright to beneficiaries, and it decreases the chances that assets earned and accumulated are not lost to lawsuit or divorce by the beneficiary.

Given the significant potential benefits of asset protection and estate tax savings, the use of lifetime trusts for beneficiaries should be considered in all cases where the amounts bequeathed are more than nominal.

This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.  LPL Financial does not provide legal advice or services.

facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Paying for Health Care in Retirement

By Ryan Yamada, Senior Wealth Planner    When putting away for retirement, we often dream about all the things we’ll be able to do with that money – traveling, going out to eat, maybe trying new hobbies. 

Senate Addresses Taxes, Deficit, Inflation, Health Care in Proposed Bill

By Jamie Hopkins, Managing Director, Wealth Services  Sonu Varghese, Director, Investment Platforms; and Ryan Detrick, Chief Market Strategist, contributed to this report.    Senate Democrats have reached a general agreement on a bill to address climate change, taxes, health care, inflation …

Quarterly Market Outlook: What Lies Ahead for the Third Quarter of 2022?

By Scott Kubie, Senior Investment Strategist    The first half of the year proved challenging for even the most hardened of investors. High inflation. Continual losses in the S&P 500. Bear market. Fed rate hikes. It all added up to the third most volatile market in 25 years.  

Culture From the Top Down: Executive Compensation Plans Explained

By Craig Lemoine, Director of Consumer Investment Research At their most basic level, executive compensation plans are designed to attract, retain and motivate top talent and leadership. But truly successful plans are designed to be much more than providing a high salary to a key employee – …
1 2 3 96 97 98

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation