Setting up a lifetime asset protection trust is a great way to protect your children's inheritance. Here's how it works.

What Is a Lifetime Asset Protection Trust?

Oftentimes, the key to creating generational wealth lies in protecting the assets you pass down to your children and grandchildren. If you don’t want their inheritance to get squandered by an irresponsible spouse, or lost in an unexpected lawsuit, there are steps you can take. For instance, you could set up a lifetime asset protection trust. Here’s how this unique type of trust works, and how it can provide a safety net for your children’s inheritance.

Revocable vs. Irrevocable Trusts

A lifetime asset protection trust is a type of irrevocable trust. Because it is irrevocable, it can never be changed or dissolved. The main advantage of an irrevocable trust is that it offers protection against creditors and lawsuits. It can also be used to avoid inheritance taxes on large estates, or to preserve eligibility for government benefits.

Revocable living trusts also have many advantages, the main ones being that you can retain control over the assets, and you can change or revoke the trust at any time you choose. However, a living trust does not protect against financial disasters like substantial debts, divorce settlements, and lawsuits.

How Does a Lifetime Asset Protection Trust Work?

When you place assets into an irrevocable trust, the trust becomes their owner. Legally, they no longer belong to you, so no one can sue you for them. They do not legally belong to the beneficiary, either, so no one can sue your beneficiary for funds held in the trust. If your beneficiary ever gets divorced, or marries someone who is financially irresponsible, the funds in the trust will be protected from their spouse.

A trustee will manage the investments and distributions according to the terms of the trust documents. Having this third-party management system in place ensures that the trust assets will be handled responsibility. This can be an added advantage, especially if your beneficiaries are still minors, or if they are not ready to handle a large sum.

As with any trust, you can establish very specific terms about how and when the funds will be distributed. For example, you can set up a trust for your grandson and stipulate that the funds may only be used for educational expenses. You can specify a certain amount to be released before each new semester. Or you can reserve a certain amount specifically for studying abroad.

How to Protect Your Children’s Inheritance

If your goal is to build generational wealth, setting up a lifetime asset protection trust is a great way to protect your children’s inheritance. An irrevocable trust will help you keep your wealth in the family so it can continue to grow and benefit future generations. The team at Phelps LaClair can advise you on which type of trust will best help you meet those goals.

To take the first steps toward setting up a trust, or to learn more about our trust administration services, please contact us to schedule a meeting. Your first consultation is always free of charge, and we have offices throughout the Phoenix area. Make an appointment today at the location nearest you.


Photo by Daiga Ellaby on Unsplash used with permission under the Creative Commons license for commercial use 6/18/2024. 


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