A trust is a legal agreement that requires four basic elements — a grantor, a trustee, assets and a beneficiary. The grantor, sometimes referred to as a maker or trustor, is the person who creates the trust. The grantor must designate assets to fund a trust as well as appoint a trustee to oversee the trust and at least one beneficiary who will receive the benefits of the trust. A person can play more than one role within a trust. For example, the grantor may also be a beneficiary. Trusts come in many forms and are created for a wide variety of reasons. One category of trusts that has gained popularity over the last few decades is the asset trust.

An asset trust, as implied by the name, is a trust that has protection of assets as the main purpose of the trust. The grantor may be attempting to shield the trust assets from creditors or taxes, for example. An asset protection trust works by separating the benefits of the trust assets from legal ownership of the assets. In other words, the idea is to allow the trust beneficiary to enjoy the benefits of the trust assets without having actual legal ownership of the assets. With no legal rights of ownership to the trust assets, the beneficiary cannot be taxed on the assets and creditors of the beneficiary cannot attach a lien to the assets or garnish the assets.

State laws govern the availability and formation of an asset trust within the United States. In most cases, an asset protection trust must be irrevocable to qualify. In addition, most asset protection trusts include a spendthrift provision which prevents the beneficiary from alienating his or her benefits in favor of a creditor or a third party. Asset protection trusts are not impenetrable, however. Child support obligations, for example, can often penetrate the shield of an asset protection trust. Historically, a grantor who was also the beneficiary of the trust was not an allowable asset protection trust; however, many states have made changes which now allow for self-settled asset protection trusts under certain conditions.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

If you are in the process of estate planning and are looking for a way to pass down assets to your heirs that has significant tax benefits, you may wish to consider creating a generation-skipping trust. As with all financial tools, a generation-skipping trust has both benefits and drawbacks; however, it is certainly worth considering and taking the time to consult about with your Fayette County and legal advisors.

A trust is a way for you, as the grantor, to set aside certain assets or funds for the benefit of your loved ones. A trust requires you to appoint a trustee to oversee and administer the trust as well as designate beneficiaries who will have the use and benefits of the assets. As the name implies, a generation-skipping trust is a trust that requires you to designate your grandchildren as the beneficiaries, thereby skipping a generation.

The biggest benefit to a generation-skipping trust is that it allows you to avoid the often high estate taxes that would normally be levied if you were to leave the assets outright to your children. By “skipping” your children, the estate taxes do not apply.

While your children cannot access the trust assets directly, a generation-skipping trust can be set up, for example, to allow your children the use of any income generated by those assets. Let’s assume you placed real property in the trust and that property generates rental income, your children could use the income generated by the rent if you choose to structure your trust to allow it. Likewise, if you placed funds into a generation-skipping trust, it could be structured to entitle your children to the interest on the principal. A generation-skipping trust must be carefully drafted so consult a Fayette County estate planning attorney if you are considered using this tool.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

A lot of people consult with Atlanta estate planning attorneys because they would like to gain tax efficiency in light of the estate tax and its 35% top rate in 2011. They feel as though they paid taxes on the money that they earned all of their lives, and this added up to a considerable contribution to the federal coffers. To them it seems like they have paid more than their fair share during the course of their lives and they see no reason why they should have to give the government more than half of what’s left at the time of their death. They would prefer to pass their legacies on to their loved ones fully intact.

There are a number of strategies that can be implemented to position your assets out of the cross hairs of the estate tax, and one of these is the generation skipping trust. After you decide how to fund the trust you name your grandchildren as the beneficiaries, skipping a generation as it were. Your grandchildren will receive the remaining assets after your children, the second generation, pass away free of any estate tax liability assuming the amount is less than the generation skipping tax, which is $5 million in 2011.

You may say that this is all well and good, but what about my children? The nice thing about the this type of trust is that your children can benefit from the trust throughout their lives and receive cash distributions from the earnings of the trust and otherwise utilize trust property. For example, one of your children could reside free of rent in a home that had been placed in the trust. So generation skipping trusts provide estate tax efficiency, but they also deliver asset protection. Since the trust does not belong to your children, the assets therein cannot be targeted by claimants seeking judgments against them.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

Asset protection is the act of making your nonexempt belongings exempt from lawsuits for negligence, debts, or an heir’s soon-to-be ex-spouse. Your attorney can help you protect your assets for your entire family.

Protection for You

Many of your retirement accounts may already offer protection. For those that do not, your attorney may be able to help you reposition funds to safeguard your money for your later years. You can also use a Family Limited Liability Company or Irrevocable Trust to protect other assets.

Beware, when you use some asset protection methods, you are giving up control of those items. Once you fund assets into an Irrevocable Trust, that Trust cannot be changed. You will not have access to those items and they will remain in the Trust for your beneficiaries. It is best to use these Trusts after you have set aside what you need for your lifetime.

Protection for Your Spouse

You can protect assets for the benefit of your spouse with an AB Trust. This is a Trust that splits your estate in half and gives one Trust to each spouse. Upon your death, your spouse will have control of your Trust until his or her death. Such a Trust ensures your spouse will have funds for living expenses and medical care after you have passed away.

Protection for Your Children

You can offer your children asset protection with Irrevocable Trusts or a Family Limited Liability Company. With both, as long as assets remain within, they are protected from all beneficiaries’ debts and other lawsuits. This allows you to provide your children with an inheritance throughout their lives or at least for the duration of the Trust.

You can also use a special IRA Trust, which is Revocable, to house your IRA. Your retirement account may already be protected from your own lawsuits, but once it is passed to an heir, it is not safe from their indiscretions. With an IRA Trust, you can provide a protected lifelong income for your heirs.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.