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How Living Trusts Protect Your Assets (and keep your legacy intact) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys, Toby Mathis here.
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And today, going to answer the question,
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do living trusts provide
you any asset protection?
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So let's back way up and
before I answer that,
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I'm just going to talk
about trusts in general.
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So number one is there's really
three parties to any trust.
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It's grantor, it's trustee,
and it's beneficiary.
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So I'm just going to draw it
up here so you can follow it.
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'Cause I always use a triangle.
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And so you have a grantor,
who's putting assets,
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I'll just put money, into the trust.
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And that's managed since the trust
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can't really own anything
on its own accord,
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it has to own it through a trustee.
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Somebody or something
that's handling that.
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So we have our trustee,
who manages that asset
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for the benefit of, can you guess?
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A beneficiary, right?
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Or beneficiaries.
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All right.
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During your lifetime,
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so we call it living trust,
during your lifetime,
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you're going to be in all three positions.
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It's actually really simple.
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So we'll just say, it's you.
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If you're married, then
maybe it's you and a spouse.
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And then if something happens to you two,
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so let's just say that
incapacitation or death,
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then you have a third party
step in as the trustee.
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Family member, whatever.
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Could be a company, could
be a trusted individual,
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could be a fiduciary, your lawyer,
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your accountant, fill in the blank.
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But you're going to have
somebody step into those shoes.
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Same thing here, during your lifetime,
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you're the primary beneficiary.
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It's you, your spouse.
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And then you leave instructions.
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That it's either like,
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hey, I'm going to distribute everything
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to so and so when I pass
or to this organization
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or hold it in trust until somebody's 40,
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you put all your conditions in
there, whatever you want to do.
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So a lot of people have
that same mentality
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of when I'm gone, I'm going
to leave it to my kids.
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So maybe you're leaving it to your kids,
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not my favorite, but you
can absolutely do that.
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That's essentially what a trust is.
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Now, here's the big difference here.
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During your lifetime, this whole thing
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is what's called irrevocable trust.
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And this equals no asset protection.
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None, zero.
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Unless there's a statute.
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I mean, your state could
always say, hey, you know what?
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We're going to create a statute
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that makes living trusts
have asset protection.
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There's there's no such thing right now,
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there is a land trust statute
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in Florida that gives protection.
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But the revocable trust, the easiest way
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to look at it is if I can change it,
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it means it's not truly in place.
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Somebody can go in there and come after me
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as the beneficiary of the grant,
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or they don't have to even really,
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they don't even have to
name the living trust,
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they can just come after me,
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and I am my trust during my lifetime.
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Now somebody passes away,
something magic happens.
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A portion of it now becomes irrevocable.
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Which equals protection.
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And it's in a couple
of different fashions.
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You have provisions generally speaking
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in a living trust that are going to say
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it's called credit shelter provisions.
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It's like, Hey, if a
beneficiary is subject
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to a court order or judgment
or anything like that,
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don't distribute to 'em.
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There's also special needs provisions.
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Hey, if it's going to cause
them to lose a state benefit,
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don't distribute to 'em.
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Those type of things are pretty common
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in a well drafted document
where it's saying,
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hey, if my beneficiary is
in peril and compromise,
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don't give it to that beneficiary.
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If somebody's just going to
take it, don't give it to 'em.
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And that's pretty common,
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getting called a credit shelter provision.
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If you pass and you
have a surviving spouse,
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there's another side to this,
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that portion of the estate,
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which if you're drafting it appropriately,
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half of that estate,
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so it may be we dot this
thing, becomes irrevocable.
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It can always be a portion,
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but I'm just going to use for example,
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two spouses, half the
estate gets locked down.
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The beneficiary remains your spouse,
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but it becomes irrevocable
for their benefit,
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let's just say it's the decedent.
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So if somebody, I'm just
going to put pass away.
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So somebody passes,
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the spouse is still the beneficiary
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of that trust that is left behind,
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the decedent's trust is going to point
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towards the beneficiary and say,
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all right, during your lifetime,
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you get to be the beneficiary.
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There's other little
things that you can tweak
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around with this, there's
different types of trust,
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but I'm just using this
as a great example.
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The reason that there's different types
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is 'cause of estate tax issues.
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Right now we have this
monstrously high estate tax,
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so 99.9% of you guys don't
have to worry about it,
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but just for sake of asset protection,
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this half becomes locked down.
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You now have those credit
shelter provisions on that half.
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The second half, that's still revocable
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means that the surviving
spouse can change it,
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does not have asset protection.
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And they could change it.
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If they get remarried,
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they could leave it to their new spouse.
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If you want to lock down
your half that says,
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hey, to your now spouse,
something happens to you,
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if you want to make sure your kids
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are going to get their inheritance,
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you need to lock that down
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so that the spouse is
a lifetime beneficiary,
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and then it would go to your family.
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Otherwise you run the risk
of disinheriting your family.
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Happens all the time,
every day in this country.
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So again, if we didn't have a portion
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of it becomes irrevocable,
let's just say you pass away
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and it automatically goes
to the surviving spouse.
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Okay.
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Then there's no asset protection for it.
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And that surviving spouse has complete
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unfettered control over that asset.
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If that surviving spouse gets sued,
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if that surviving spouse gets remarried,
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all of those assets are going along
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with that surviving spouse.
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If you locked it down and half of it
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became irrevocable, or a portion
of it became irrevocable.
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Easiest way to think about this
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is now there is protection for it,
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because that portion is no
longer available to anybody
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That is the creditor of that spouse.
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That spouse still has the
right to access the funds
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under certain circumstances.
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Usually the way these are drafted
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is you'd say, hey, use your
money first, surviving spouse.
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And then if you need it, you have access
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to this money that's going
to, for your lifetime,
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and then it's going to go to your kids.
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And you could even put
in provisions that say,
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hey if you ever get married,
you got to do a prenup.
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And you have to recognize,
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the new spouse has to recognize
that's not their asset.
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Usually that's earmarked for
kids, and it makes sense.
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Now so you're asking, does this,
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is this part of an asset protection plan?
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The easiest way I would
say it is not really.
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Realistically, this is legacy planning.
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Asset protection
planning, the use of LLCs,
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other types of protection vehicles,
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limited liability entities,
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like limited partnerships
and corporations,
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that's asset protection planning.
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And they do kind of go like this,
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they fit nicely together.
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Hey, I create my living
trust and it's going to hold,
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if you have a holding, for example.
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Let's say you have a holding LLC
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and it's sitting in Wyoming.
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It's going to be owned by
you as trustee of your trust.
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You and your spouse, one of you.
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If you have a corporation out here,
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Your shares are held inside the trust.
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Easiest way to look at it,
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is everything's being held by the trust
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because you want to say
here's where it goes.
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You could even put specific
provisions in here,
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like, hey, let's say you have one child
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that's really good in your,
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let's say it's real estate investing.
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So you have some other LLCs
floating around out here
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holding a bunch of real estate,
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and they're all pointed
towards this one holding LLC.
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And you have one child, let's
say you have three kids.
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And one of 'em is really
good on the real estate.
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You could say, hey, you know what?
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You're going to manage that real estate.
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Or you're going to get a
little extra piece of that
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as part of what you put in your plan,
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you can absolutely do stuff like that.
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And say, if something happens to me,
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I don't want you guys
to destroy what I built.
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I don't want you guys to undo it.
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The king of this was Ingvar the owner,
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the founder of Ikea, right?
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Ikea, you can't get rid of Ikea.
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Ikea's actually, charitable organizations
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own big chunks of it,
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Ikea itself is a charitable organization.
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His kids can't get rid of Ikea,
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he built it specifically to be that way,
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as I don't want you to undo my legacy.
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You could create the same thing,
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you could say,
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"I have a business that
we built up as a family.
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I want it to be there in
four or five generations."
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The only way you're going to do that
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is through one of these vehicles,
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called a legacy trust.
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Once it becomes irrevocable,
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you put in provisions that say,
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hey, you know what?
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The beneficiaries can't
sell all the assets.
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The beneficiaries are
the income beneficiaries
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and they only get it if it's for health,
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education, maintenance and support.
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Like you could put in there hem standards,
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or even less, you could say,
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hey, it's only there
for college educations
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or higher education.
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That's the only thing that'd be used for,
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you guys get to manage the business
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and it's all owned by this trust
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that's then just going
on for hundreds of years
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for the benefit of your
family, for specific things.
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So does a living trust
provide asset protection?
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No. Not during your lifetime.
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When you pass, it creates
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a very, very nice vehicle
for creating a legacy.
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And that's what I want to leave you with,
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is that the living trust is
appropriate for legacy planning,
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not for tax planning, other
than for the estate tax
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to a certain extent,
not for asset protection
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other than it does become
irrevocable at some point
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and provide some credit shelter provisions
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for future beneficiaries.
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Like, so if you have kids
and they go through a divorce
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or they get into a massive lawsuit,
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nobody can go in there
and force distributions
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out of the living trust.
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It's not really there for any
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of those reasons for business
planning or anything else.
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It's really there for the legacy planning.
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And it's a very, very effective tool.
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And it does have other
provisions it has in there
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for healthcare, end of life decisions,
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a living will, HIPAA releases.
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So whomever you name as your healthcare,
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power of attorney can actually get access
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to information so they can
make good decisions for you.
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Or same thing for the living will,
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so they can talk to the doctor or doctors.
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There's provisions in
there for giving gifts,
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for Memorial instructions,
burial versus cremation,
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who takes care of minor children,
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who takes care of somebody
who's your dependent.
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It can even be things like,
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hey, what happens for your animals?
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All that stuff is covered
inside of a living trust.
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It's a wonderful vehicle for that
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and I believe everybody
needs an estate plan.
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Period, full stop.
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Everybody could use a living trust.
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It's a very, very effective tool,
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but it is not an asset protection tool.
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Hey, if you like this type of information
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and believe somebody
could benefit from it,
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please share it.
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