Can a Trust Protect Family Wealth?

Creating wealth can be a challenging task, but the work is not done when you have achieved your financial objectives. You must then take steps to protect your family wealth. There are certain trusts that can be utilized to preserve your wealth, and there are others that are not suitable for wealth preservation purposes.

Asset Protection & Estate Taxes

Before we look at the different types of trusts, we should explain the sources of asset erosion. As they say, we live in a litigious society. Many people who have been financially successful are viewed as “deep pocket targets” by litigious types.

Those who are in certain professions are particularly vulnerable to lawsuits. For example, physicians are subject to malpractice suits, and landlords are also exposed.

Asset protection is important for those who are concerned about legal actions.

The federal estate tax is also a threat to your family wealth. This death levy carries a maximum rate of 40% at the present time.

There is a federal estate tax credit or exclusion. This is the amount that you can transfer tax-free. In 2014, the amount of the federal estate tax exclusion is $5.34 million. Anything that you want to transfer that exceeds this amount is potentially subject to the federal estate tax.

Revocable Trusts

Revocable trusts will not provide asset protection or estate tax efficiency. This is because you can in fact revoke or rescind the trust at any time. You have not surrendered permanent control of the assets.

In addition to the retention of the right of revocation, you can also act as the trustee and the beneficiary while you are living. As a result, you can retain control of the assets even if you keep the trust in place.

You may wonder why revocable living trusts are utilized if they do not provide asset protection or estate tax benefits. These trusts are useful for those who want to facilitate the future transfer of monetary assets outside of the process of probate.

Probate is a legal process that can be time-consuming and expensive.

Irrevocable Trusts

There are also irrevocable trusts. This type of trust would help you protect your family wealth, because you are surrendering control of assets that you convey into the trust.

The name of the trust explains a great deal: you can’t revoke it. Generally speaking you cannot alter the terms, but there are limited exceptions under special powers of appointment.

Because you cannot take back the assets that have been conveyed into the trust, they are protected from claimants seeking redress. In addition to this, assets that have been conveyed into an irrevocable trust would no longer be part of your taxable estate.

Wealth Preservation Consultation

If you would like to discuss wealth preservation strategies with a licensed estate planning attorney, contact us through this website to request a free consultation.

Blaine Peterson
Attorney
Parman & Easterday