Establishing Lifetime Trusts to Secure Financial Legacy for Your Children

Should your enduring financial objectives involve bequeathing a financial legacy to your children, it becomes paramount to initiate measures promptly to safeguard your assets for the forthcoming generation. A viable strategy in this regard is the adoption of a Lifetime Asset Protection Trust (LAPT), presenting an avenue to concurrently accumulate wealth and safeguard assets designated for your children.

Benefits of LAPT

The establishment of a LAPT yields several primary advantages.

1. Asset Protection

Assets housed within the trust are under the management of a specified trustee and are not categorized as the direct possessions of your children. This arrangement provides protection against:

• Divorce – A LAPT establishes a legal demarcation between marital property and the inheritance, thereby rendering assets held within a LAPT generally exempt from division in the event of a divorce.
• Incapacity – In the event that your child experiences illness or incapacity, rendering them unable to make financial decisions, the trust will persist in operation under the supervision of its designated trustee.
• Creditors – The inclusion of “spendthrift” provisions in the trust empowers you to restrict the beneficiary’s authority over the trust’s assets. Consequently, creditors are unable to access trust assets for the satisfaction of debts. This feature proves particularly beneficial in situations where a child grapples with substantial debt.

2. Control and Management

Your designated trustee will be responsible for managing assets held within the LAPT, guided by your specified trust provisions. This process helps ensure trust assets are managed in a responsible manner and distributed to your children according to your wishes.

3. Tax Planning

Transferring assets into a LAPT serves the dual purpose of diminishing the taxable value of your estate and preventing the inclusion of these assets in your children’s estates.

4. Flexibility

LAPTs offer the flexibility to customize trust provisions in alignment with your preferences. This enables you to tailor the trust to address the unique needs, challenges, and familial dynamics of your children.

5. Distributions

Beyond the adaptable structure of trust provisions, LAPTs provide the capability to specify the timing, conditions, and recipients of distributions. This means you can delineate that beneficiaries attain a particular age, achieve an educational milestone, or experience a life event before becoming eligible for distributions. Such flexibility enables you to transmit not only your assets but also your family values.

Important Considerations

LAPTs may not suit everyone. Prior to incorporating this trust structure, it is imperative to take into account the following considerations:

1. Complexity and Cost

Establishing and maintaining LAPTs can involve considerable complexity and expenses. The investment of time and financial resources may not be justifiable for smaller estates.

2. Tax Challenges

Although LAPTs present substantial tax benefits for your beneficiaries, they also introduce tax planning and compliance intricacies that may exceed the level of management you are prepared to undertake.

3. Legally Binding

Trust documents possess legal enforceability and can be challenging and expensive to amend should your circumstances or objectives undergo changes over time.

4. Jurisdictional differences

The advantages and efficacy of LAPTs can vary depending on your geographical location. Certain jurisdictions may have more favorable trust laws compared to others.