If the last few years have taught us anything at all, it’s that stuff happens–unplanned, unforeseen stuff. While we can’t quickly undue the pandemic, economic woes or environmental disasters, we can protect assets for our loved ones. Here’s guidance.
Do We Really Need To Protect Assets?
As much as we are all focused on confidently paddling away from problems post-pandemic, attorney Jennifer Boyer of Ward and Smith in Pennsylvania points out that it’s best to heed the lessons of the recent past and take the safeguarding of our assets more seriously:
As the last few years have made abundantly clear, it is impossible to plan for every contingency, catastrophe, or future storm. The pandemic has taken loved ones, caused even wildly successful businesses to close in high numbers, and has strained countless relationships. It is perhaps more important now than ever to remember and implement the simple planning tools that are available to shield loved ones from unnecessary financial risk. Asset protection trusts are one of those tools for providing shelter from the uncertainties that the future may hold…. For those not in a “certain tax bracket,” this type of planning may seem like an overreach…. There are many reasons, however, to incorporate asset protection trusts into even the simplest estate plan – especially in the context of passing assets to children and grandchildren.
Boyer further observes that although, “asset protection trusts” tend to evoke “images of a complex web of shelter trusts, holding companies, off-shore entities” meant to “hide wealth from the…prying eyes of creditors or tax authorities,” they can actually be a helpful tool for many families:
An asset protection or spendthrift trust is a trust funded by one person for the benefit of another. Assets that remain in the trust are protected from the claims of the beneficiary’s creditors, because the law respects the distribution standards set by the trust’s creator. In other words, if a parent decides that distributions from a trust can only be made for their child’s health, education, maintenance or support, then the child’s creditors have no claim to those trust funds while they remain in trust, since payments to the creditors meet none of those thresholds. Spendthrift trusts have a reputation for imposing onerous restrictions….But the basic structure does not require any onerous restrictions: merely a trustee and some guidance for that trustee to follow in making distributions to the beneficiary. For a vast majority of clients who want to avoid putting too many “strings” on their assets, asset protection trusts can still be used, retaining both flexibility and the creditor protection benefits.
As with all types of trusts, an asset protection trust can be specifically tailored by the trustor (person establishing the trust) to build in flexibility, without harming the protective nature of the trust. For example: “If a trust creator thinks it is appropriate, they might add even more flexibility by naming the beneficiary to serve as their own trustee. Often, this occurs after a beneficiary has reached a certain “responsible” age ….As long as the beneficiary-trustee still has an articulated standard to follow when deciding whether to make distributions to themselves, the structure is respected and creditors are kept at bay.”
Trusts: A Quick Overview
The legal underpinnings of all trusts are similar, but the variations on how they are arranged are many. Attorneys explain, in essence: “A trust holds assets and allows for these assets to be managed and controlled by a trustee.The trustee manages and passes assets to trust beneficiaries according to trust provisions.” When opting for any type of trust as part of an estate plan, be sure to put enough detail into the agreement to make the purpose and conditions for the distribution and use of trust funds clear. It’s also vital to choose a reliable trustee. As lawyers remind us:“With a proper trust, there will not be court involvement which means this person will have no court oversight in how they do their duties as trustee—choose wisely!” In doing so, it’s best to begin by carefully considering the qualities, skills and time commitments a trustee will need to successfully administer the terms of the trust. Learn more about the essential duties of trustees right here.
Ultimately, whether a professional, friend, or relation is selected, the trustee has a fiduciary obligation to the beneficiaries—and must always exercise reasonable care and skill in managing the assets of the trust. Accordingly, the trust agreement may require a trustee bond, which is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of all types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere, anytime.
Estate and Trust Law?
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