Trusts That Can Cover Your Assets

August 22, 2017

I have found that majority of my clients do not believe they need a trust, even with a net worth exceeding $1M. Why would you? The current 2017 estate and gift tax exemption is $5.49M or $11M for married couples and not all clients exceed that. Most clients believe a trust is only required if you have an ultra-high net worth, but in reality, that is just not accurate. A trust isn’t some magic trick to help the rich avoid estate taxes. The truth is, a trust can help the majority of people at nearly any income level.

The biggest mistake I see, from a financial advisor’s perspective, is that clients list their minor children as beneficiaries on bank accounts or even life insurance policies. Listing your beneficiaries as a minor can create a lot of unknown and likely provides someone access to those assets you didn’t intend to have access. To avoid this pitfall you could benefit from a trust or at least a conversation with an attorney who specializes in estate planning. It’s important to understand, the state or courts will not allow beneficiary payouts to a minor, so you have to ask yourself who is the beneficiaries’ primary guardian? Who will the court default this payout to and how long could the assets be held up in court proceedings while going through probate?

So what is a trust? A simple definition of a trust is where you designate one or more persons, known as a trustee, to hold legal title or ownership over a property or other assets. The trustee has a legal obligation to the terms or laws in the trust. Typically you will establish either a revocable trust or irrevocable trust and the distinction between the two types of trusts is important to understand because if you set it up incorrectly you could leave yourself or your beneficiaries in a financial mess.

So what kind of trusts can protect your assets? Well, first I would consider looking into an Asset Protection Trust, which must be set up as an irrevocable trust. The idea behind this trust is that you personally no longer own those assets; the trust will own them, which protects those assets from lawsuits and creditor risks. Although not all states allow for an Asset Protection Trust, this type of trust is allowed in Nevada and is usually referred to as a self-settled spendthrift trust.

For married couples with an estate that exceeds the current estate tax exclusion rate you might consider a Bypass Trust, This type of trust is designed to help avoid unnecessary estate tax liability by maximizing the total estate exclusion of both spouses. Each spouse sets up their own estate planning documents to leave assets or property up to the maximum allowed under the exclusion cap to the bypass trust. At which point the remaining assets are left to the other spouse. The property left to one spouse qualifies for a marital deduction to the estate tax, so when the first spouse dies, the surviving spouse can acquire the remaining property tax free.

The bypass trust strategy allows the property left to the trust to be covered by the estate tax exclusion while removing the property from the estate of the surviving spouse. Once this happens the property may increase in value and safely grow above the exclusion amount without creating additional tax liabilities. Typically the surviving spouse can access the assets inside the trust but it’s normally recommended that they spend down other assets not included in the trust first. When the surviving spouse dies, the assets remaining inside the trust will go to the named beneficiaries, without facing an additional round of estate taxes.

These two types of trusts can be beneficial in the right situation. If you believe these trusts might address your specific situation I recommend talking to an estate planning attorney to identify which trust would be right for you and your heirs. Because there are many other kinds of trusts, you should discuss the details with legal counsel prior to setting up any kind of trust or will. If you’re in need of an introduction to an attorney I’ve worked with in the past, please call my office or go to our partner’s page for more information.

Written by Greg Feese, CRPC®

This information is not legal advice and I’m not an attorney. Information given here is based on my knowledge and experience, as a Financial Advisor and due to complexity and detailed requirements I will always recommend you seek legal advice through a qualified and licensed attorney.

Greg Feese CRPC®, Investment Advisor Representative. Advisory Services offered through PR Wealth Management Group, Inc., a Registered Investment Advisor. PR Wealth Management Group, Inc., a Registered Investment Adviser, doing business as Legacy Wealth Management Group of Las Vegas, LLC. PR Wealth Management Group, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. This is not a solicitation for sale of securities in any jurisdiction.. The investment advisory representatives referred to on this site may only transact business, effect transactions in securities, or render personalized investment advice for compensation, in compliance with state registration requirements, or an applicable exemption or exclusion.

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Greg Feese CRPC®, Investment Advisor Representative. Advisory Services offered through PR Wealth Management Group, Inc., a Registered Investment Advisor. PR Wealth Management Group, Inc., a Registered Investment Adviser, doing business as Legacy Wealth Management Group of Las Vegas, LLC. PR Wealth Management Group, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. This is not a solicitation for sale of securities in any jurisdiction.. The investment advisory representatives referred to on this site may only transact business, effect transactions in securities, or render personalized investment advice for compensation, in compliance with state registration requirements, or an applicable exemption or exclusion.

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