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Consider a self-settled trust in your estate planning

It’s always a great idea to be sure that your loved ones will be taken care of after you’re gone, but when you’re working out your estate planning, are you making sure to protect your assets from future creditors during your lifetime? A savvy method of asset protection that’s growing more popular is a form of trust called the spendthrift trust, or self-designated trust.

This type of trust stands out from other trusts with its unique structure of naming the grantor as the beneficiary. It protects the grantor’s own assets while he or she is still alive, from creditors as well as a possible ex-spouse. An independent trustee is named who controls the distributions, and who is not required to distribute money to the grantor if it’s not in the best interests of the estate.

A few restrictions apply: The trust can’t be made to defraud current creditors or keep them from accessing any assets to pay off debts. The rules regarding self-designated trusts vary by state and can be complicated. And since the independent trustee has the power to restrict distributions, he or she must be someone the grantor can trust to manage the assets.

Still, a self-designated trust has many benefits. For example, a gift of $5.25 million for the lifetime gift tax exemption can be made to the trust, protecting it from future creditors and taxes. The remainder of the estate under the trust’s protection can go to the other beneficiaries–such as loved ones–after the grantor’s death.

The spendthrift trust is still a relatively new practice in estate planning. It’s recommended to consult with an estate planning attorney to be sure of Florida’s laws regarding self-designated trusts.

Source: Palisades Hudson, “Using A Self-Settled Trust To Protect Assets,” David Walters and Melinda Kibler, June 10, 2013



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