When you’ve spent your lifetime building wealth through hard work, smart investments and careful financial decisions, you hate to think that all those assets will be gone within a generation or two.
Unfortunately, preserving that wealth for future generations can be difficult. Taxes, creditors, divorces, poor financial decisions and legal disputes can burn through inherited wealth pretty fast. That’s why many people of means turn to trusts. Trust can help make sure that your legacy survives for many years into the future. Here are some of the best options:
Revocable living trusts
Revocable living trusts are incredibly popular because they can remain in the grantor’s control during the grantor’s lifetime, but become irrevocable upon the grantor’s death. Assets that are properly held in such trusts avoid probate and pass to the designated beneficiaries quickly (and privately).
It is important to note, however, that revocable living trusts do not provide the kind of asset protection many people seek. If you are looking for better asset protection during your lifetime, this option may not be suitable.
Dynasty trusts
If you want to preserve wealth for several generations, a dynasty trust might be key. A dynasty trust is specifically designed to hold assets for one’s children, grandchildren and ongoing descendants.
Because the assets are kept in a trust – rather than passing directly to your descendants – they are largely protected from lawsuits by creditors and division in divorce. They can also be structured to avoid or reduce unnecessary estate taxes, which increases the amount of wealth that is passed forward.
Irrevocable trusts
Irrevocable trusts, generally speaking, cannot be changed once they are established. In exchange for giving up direct control of your assets, you gain significant protections from future claims by creditors, disgruntled ex-spouses and more.
Irrevocable trusts are often used to protect large investment portfolios, life insurance proceeds, real estate holdings and closely held businesses.
Spendthrift trusts
Inheriting a great deal of wealth at once can be overwhelming, especially if someone is unprepared. Not every person you love may be capable of managing a large inheritance responsibly. A spendthrift trust allows you to exert control over the distribution of wealth and protect a beneficiary from their own worst instincts.
Spendthrift trusts are typically used to protect beneficiaries under a certain age or those who may have vices (such as gambling, drug addiction or alcoholism) that could make them vulnerable to financial exploitation.
These are not the only trusts available. What kind of trust works best for you depends largely upon your goals, your family and the type of assets in question. Experienced legal guidance from a skilled estate planning attorney can help you make informed decisions that will protect your legacy and your loved ones.