Asset Protection Trusts that
Can Help You Fend Off Legal Threats
New legal threats are always proliferating – from new laws and regulations to new avenues for trial lawyers to try to litigate their way to your assets. The shocking growth of entangling laws and regulation is tripping up honest Americans. Several thousand federal criminal statues exist now. For historical comparison, back in 1790 only six existed: treason, counterfeiting, piracy, as well as murder, maiming, and robbery in federal jurisdictions.
Today scholars from universities to the Justice Department to the American Bar Association don’t know how many of these laws exist. It’s believed to be greater far greater than 4,500. It’s too numerous to count, and these statutes are peppered throughout 27,000 pages of the federal code.
There is no way to completely immunize yourself from legal threats, but you can take steps to make yourself a less visible and less attractive target. One step that
anyone with any significant assets to their name should consider taking is to set up a trust or multiple trusts in which to park wealth.
Trusts are separate legal entities. They have their own assets and their own tax liability. You cannot use a trust to avoid taxes entirely, but certain types of trusts do confer some significant tax advantages where estate planning is concerned.
Estate Planning Trusts
You can avoid probate and other legal hassles by creating what’s known as a revocable living trust. They are easy to set up and generally much more efficient than
wills alone. They are also flexible (you can revoke or make changes to your trust while you are living).
Another type of trust to consider creating is a Crummey trust, named after Clifford Crummey, who beat the IRS in court and won the right to keep the trust he had established. A Crummey trust potentially enables you to pass financial assets to your heirs tax-free. The trust can be established for multiple beneficiaries, including those who are over age 21. Until the estate tax is fully eliminated, a Crummey trust is one of the best ways to legally avoid it.
If you are married and have children, consider an AB trust, which may also be referred to as a “credit shelter trust,” a “marital life estate trust,” or an “exemption trust.”
With an AB living trust, each spouse leaves property, in trust, to the other for life, and then to the children. You can save thousands of dollars in estate taxes through this
type of trust. An AB trust usually makes the most sense if your total assets exceed $750,000.
Although life insurance benefits are legally nontaxable, the value of a life insurance policy itself could trigger estate taxes. You can avoid this disaster without giving up any insurance benefits by setting up an irrevocable life insurance trust to assume ownership of the policy. If you own life insurance and think your estate is large enough to trigger the death tax, then consider creating an irrevocable life insurance trust. Keep in mind that irrevocable trusts have strict requirements and offer less flexibility than revocable trusts; consultation with a trust lawyer is essential here.
Own Property More Privately
through a Land Trust
Most people assume that owning property is a matter of public record, which any low-level investigator could probe to identify real estate assets. But it doesn’t have
to be this way. You can safeguard your privacy through what’s called a land trust.
You can obtain a land trust through an attorney or a bank. In some states, such a trust has to be established through a revocable living trust. But regardless of how
the trust is officially classified, its benefits are generally the same. As the trustee, you retain control over your property, but all the paperwork is handled in the name
of the trust. In most cases, your name won’t have to appear on any publicly available documents. (If you live in a state that requires you to register your land trust as a business or corporation, you won’t enjoy absolute privacy.)
Having a land trust could help protect you against the threats of litigation. A lien will not attach to property held in trust as easily as property held by an individual. It’s possible that a lawyer who is going after you won’t even know about the property you hold in trust, especially if that property is investment property, a vacation home, or
something else other than a primary residence.
A land trust will also help you pass along your property to your chosen heir(s) with a minimum of legal and tax hassles. With a land trust, as with a living trust, you may be able to avoid the costly process of probate entirely. Estate taxes may be minimized, too; check with a lawyer or tax advisor to see how your particular tax situation would be affected by a land trust.
Getting Expert Help in
Setting Up Your Trust
Find a good trust lawyer to help you secure your assets and protect your estate in a trust that’s right for you. The American College of Trust and Estate Counsel (202-684-8460; www.actecfoundation.org), a professional association, may be able to help you locate a trust attorney close to you.
Even a simple will or living trust, which could be handled by just about any lawyer, would be best handled by a trust or estate-planning specialist. Often, trust lawyers don’t engage in litigation at all. They serve as consultants and draw up documents for their clients, which may be all you need.