Protect Your Children’s Inheritance With A Lifetime Asset Protection Trust

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Providing for your children after your death is a concern for many parents. You may have heard of a lifetime asset protection trust and wondered if it would be right for your estate. There are several things to know about this type of trust before deciding. If you are ready to create a trust or have questions about protecting your children’s inheritance, consider contacting an estate planning attorney from The Law Office of Jason Carr by calling (214) 800-2366 to schedule a time to discuss your estate and the available options for providing an inheritance for your children.

What Type of Trust Protects Assets for Your Children When Something Happens to You and Your Significant Other?

There are many types of trusts. Most trusts provide some asset protection for an individual’s children. Some trusts, such as special needs trusts, only apply under very specific circumstances. Other trusts, such as charitable trusts, may or may not protect assets for the individual’s children, depending on how they are structured.

If a parent wants to ensure that assets are protected for his or her children, a lifetime asset protection trust may be the right choice. This type of trust, sometimes called a lifetime trust, provides the most asset protection secondary to an irrevocable trust. Asset protection trusts provide protection against the following:

  • Divorce: According to the Texas State Statutes, inheritances and gifts are not considered marital property unless they are comingled with marital property. This type of trust helps to ensure that does not happen.
  • Debt and creditors: Because the assets are owned by the trust, creditors cannot access them to cover a beneficiary’s debts or court judgments.
  • Bankruptcy: If a beneficiary files for bankruptcy, assets in the trust are protected and are not included in the beneficiary’s assets for the purposes of bankruptcy.
  • Poor financial decisions: Whether a beneficiary lacks financial skills or has a gambling or substance abuse problem, the trustee of a lifetime trust can use his or her discretion to withhold distributions until the beneficiary seeks help.
  • Beneficiary incapacity: If the beneficiary is incapacitated for any reason, the trust will continue to operate with no interruptions.
What Is the Difference Between a Trust and an Asset Protection Trust?

All trusts are created by drafting trust documents and funding the trust with assets. However, different trusts have different purposes.

Other Trusts

Most types of trusts, particularly revocable and irrevocable trusts, are structured to distribute assets to the beneficiaries either outright at the grantor’s death or in partial distributions at specific ages or stages. These distributions are made regardless of the beneficiary’s needs, wants, or circumstances.

One problem is that, once those assets leave the trust by distribution to the beneficiary, they lose the protection offered by the trust. If the beneficiary is not careful, the assets can become subject to being considered marital property in a divorce or taken by creditors to pay off debts.

Lifetime Asset Protection Trusts

A lifetime asset protection trust does not make distributions based on a schedule of ages or stages in a beneficiary’s life. Instead, distributions are at the trustee’s discretion. If a beneficiary is going through a divorce, being sued, has a substance abuse or gambling problem, or creates any other concerns about making a distribution, the trustee can decline to do so. This helps protect the assets from many of the situations in which a beneficiary might otherwise lose them.

Additionally, assets in an asset protection trust do not leave the trust. Assets are available for use and investment by the beneficiary but are not owned by the beneficiary. They are owned by the trust, which makes it much more difficult for a spouse or creditor to take the assets in a divorce or lawsuit.

What Are the Disadvantages of a Lifetime Trust?

These types of trusts offer several advantages over the other types. However, like any trust, they do have disadvantages that must be considered before deciding which trust to create.

They Are Irrevocable

Lifetime trusts are irrevocable. Once created, they cannot be changed or revoked. Once the assets are added to the trust, that is where the assets will remain, even if the grantor wants to make changes later. The permanent nature of this trust may make it less appealing for people who have strained or difficult relationships with their children and may want to change a child’s inheritance based on the status of that relationship at any given time.

They Are Time-Consuming To Create

These types of trusts can take a lot of time to create. They require time to draft the trust documents and ensure that everything is appropriately set up. In a situation where time should not be wasted, making a lifetime trust may be too time-consuming. If you are ready to move forward with creating a lifetime asset protection trust or other trust, a knowledgeable attorney from The Law Office of Jason Carr may be able to help.

One reason these trusts can take so long to create is that the grantor must also decide what happens to any leftover assets when the beneficiary dies. The grantor may also create guidelines to indicate what happens with the trust if the beneficiary gets married, buys a house, starts a business, or engages in other specific scenarios. The grantor can also provide guidelines for making decisions about investments.

They Are Expensive To Create

All trusts are different. Some are much more complex than others, and the expense to create a trust is based on the variety of investments and other assets in the trust. A lifetime trust is often set up because the grantor has a significant number of assets to protect, which means that the trust will cost more than another type of trust.

Additionally, the trustee typically receives an ongoing fee for performing trustee duties. This is not necessarily true of other types of trusts, making this another expense to consider carefully.

They May Require Creating an LLC

Some assets are safe, while others are risky. These risky assets are called liability assets. Examples of liability assets are real estate rentals, commercial businesses, motor vehicles, and boats. They are liabilities because of their interactions with third parties.

For example, a motor vehicle accident could injure a third party or damage property and the injured party may file a lawsuit. By creating a limited liability company (LLC), of which the trust can be a member according to the Texas Secretary of State, and funding it with those risky assets, other assets in the trust may be protected from the lawsuit.

How Can I Protect My Son’s or Daughter’s Inheritance?

There are many trust options for protecting a child’s inheritance. The right trust for a parent’s circumstances depends on the assets he or she wants to protect and other factors, such as how many children are included in the trust.

A lifetime asset protection trust may be the right trust if an individual has substantial wealth and wants to ensure that it will be protected against the beneficiaries’ divorce, bankruptcy, creditors, or poor decisions. A lifetime trust may also be the right trust for parents who do not have a lot of assets but who would like their children to be able to use the trust to learn about how to handle and invest those assets and grow their wealth.

Contact an Estate Planning Attorney for Your Lifetime Asset Protection Trust Today

A lifetime asset protection trust is a trust that offers substantial protection against many scenarios in which assets may otherwise end up unprotected. If you want to protect your children’s inheritance in Texas, this may be the type of trust you want. Before deciding, you may want to review your estate to make sure this is the right trust for you. Consider contacting an experienced attorney from The Law Office of Jason Carr by calling (214) 800-2366 to schedule a consultation and learn more about your trust options.

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