What Kind of Trust Do I Need to Protect My Assets?
- Phoenix S. Ayotte, Esq.
- Apr 1
- 7 min read
Protecting your assets isn’t just about saving money—it’s about making sure your hard-earned nest egg is passed down the right way. But with so many trust options available, how do you know which one is best for your situation? Some trusts offer tax advantages, others provide more control over distributions, and some are designed to shield assets from creditors or legal claims.
Whether you're planning for retirement, securing an inheritance for loved ones, or protecting your estate from unnecessary risks, choosing the right trust is crucial. Let’s break down the different types of trusts and how they can help you safeguard your financial future.
In this blog, we’ll cover the foundational trusts for estate planning.
Foundational Trusts for Estate Planning
a. Revocable Living Trusts
This is a flexible estate planning tool that allows individuals to manage their assets during their lifetime and specify how those assets will be distributed upon their death. The grantor (the person who creates the trust) retains full control and can modify or revoke the trust at any time. This is the most common trust we set up when your asset portfolio is relatively uncomplicated.
Why Use a Revocable Living Trust?
Avoids Probate: Assets placed in the trust bypass probate, ensuring a faster and more private distribution to beneficiaries. Therefore, their inheritance is protected and not drained by court fees, professional fees, and taxes during the probate process. Additionally, your personal information and asset distributions are kept out of the public record.
Flexibility & Control: The grantor can modify or dissolve the trust as their circumstances change.
Incapacity Planning: If the grantor becomes incapacitated, the successor trustee (often your spouse, but whomever you decide to appoint) can manage the trust assets without court intervention.
Continuity of Management: The trust allows for seamless asset management without legal complications after the grantor's death. **If you have a business interest, it's very important to have special provisions included, and for your business's governing documents to mirror what the trust directs.
When to Use a Revocable Living Trust?
Types of Revocable Living Trusts
Do We Need a Joint Trust or Reciprocal Trusts?
b. Irrevocable Trusts
An irrevocable trust cannot be revoked by the grantor. In comparison to a revocable trust, where the grantor is treated as owning trust assets (and so taxed on income and capital gains), income and gains on assets held in an irrevocable trust are not taxable to the grantor. Instead, such income is taxable to the trust itself (a separate tax-paying entity), or to the beneficiaries who receive income (on their individual tax returns.)
** A grantor may retain the power to make investment decisions, control the distribution of income and principal to the beneficiaries, and to add or delete beneficiaries. However, retaining these powers frustrates the purpose of achieving income and transfer tax savings.
c. IRA Beneficiary Trust
Is a specialized trust designed to hold an IRA (Individual Retirement Account) upon the death of the IRA owner. It is typically used when you want more control over the distribution of IRA assets and to ensure the assets are passed down according to your wishes while maintaining certain tax advantages. Here’s why and when it’s typically used:
Why Use an IRA Beneficiary Trust?
Control Over Distributions: An IRA beneficiary trust allows the account holder to control how the IRA’s assets are distributed after their death. This can be particularly useful if you want to ensure that the beneficiaries do not access the funds all at once, or if you want the funds to be distributed over time.
Protection for Beneficiaries: If the IRA owner has beneficiaries who may not be financially responsible, have creditor issues, or are minors, the trust can provide added protection. It can limit access to the funds and ensure that the inheritance is used wisely.
Stretch IRA Benefits: For some beneficiaries, a beneficiary trust can provide a "stretch" option, allowing the IRA funds to be distributed over a longer period of time, thus potentially reducing the income tax burden. While the SECURE Act (passed in 2019) has largely eliminated the "stretch IRA" for most non-spousal beneficiaries, some carefully drafted beneficiary trusts can still allow for extended payouts for certain beneficiaries (like disabled or chronically ill individuals).
Minimize Risk of Improper Beneficiaries: By using a trust, you can specify who exactly inherits the IRA and prevent accidental or unintended beneficiaries from receiving the funds.
When to Use an IRA Beneficiary Trust?
However, not all situations require an IRA beneficiary trust, and it can be complex to set up, so it’s important to consult with an estate planning attorney and financial planner to determine if it’s right for you.
Choosing the Right Trust to Protect Your Assets
Understanding the different types of trusts is essential for safeguarding your wealth and ensuring your estate is managed according to your wishes. With the right trust in place, you can protect your assets from unnecessary taxes, creditors, and legal complications. When you consult with an attorney at Future Counsel, LLC, you ensure the trust drafted for your aligns with your financial goals and provides the protection you need. Remember, the right trust isn’t just about passing down wealth—it’s about protecting your legacy for generations to come.
Need Expert Guidance?
If you’re in Virginia, Maryland, or Washington, D.C. (DMV) and need a lawyer to establish the right trust for you, Phoenix S. Ayotte, Esq. of Future Counsel is here to help! Protect your assets, ensure proper distribution, and gain peace of mind with a professionally drafted trust tailored to your needs.
