LIFETIME ASSET PROTECTION TRUST (LAPT)
If any of your beneficiaries are minors, a trust will be necessary in order to keep their inheritances away from predators, creditors, or future spouses.
If you do not provide for your minor beneficiaries in your estate plan, the court will appoint someone to oversee their inheritances while they are minors through a court-supervised guardianship proceeding. This is because minors cannot legally manage their own property, so an adult must do it for them. If not properly specified in a legal document, the court may appoint someone unrelated to the minor beneficiary. Obviously not what any parent or grandparent wants for their heirs!
However, all of these situations can all be avoided with a Lifetime Asset Protection Trust (LAPT).
Lifetime Protection for Minors
Generally, a living trust provides the option for parents or grandparents to leave an inheritance to their minor children or grandchildren through a separate trust that terminates when the minor turns a certain stated age - such as 25, 30, or older – when the minor will be mature enough to manage their own affairs. Unfortunately, this means that the protections afforded by the trust are eliminated when the trust terminates and the inherited assets become the minor beneficiary’s own property – opening the beneficiary up to judgments, predators, creditors, or potential future ex-spouses.
There is no rule that states a minor’s trust must terminate during the young beneficiary’s lifetime. Therefore, if drafted properly, a Lifetime Asset Protection Trust can provide protection for the beneficiary as he/she gets older. For example, if a minor beneficiary gets sued or goes through a divorce later in life, the beneficiary’s trust assets are protected and not exposed because the beneficiary does not own the assets, rather the trust does.
Asset Protection for Adults
Lifetime Asset Protection Trusts are not just for young beneficiaries. In fact, an LAPT can be established for the benefit of an adult beneficiary, including your spouse. The reasons would be the same – for protection against judgments, predators, creditors, or a potential future ex-spouse. In addition, an LAPT might make sense for an adult beneficiary who has bad spending habits or is easily influenced by irresponsible friends. So long as the assets remain in the trust, the adult beneficiary’s inheritance is protected from themselves and any negative outside influences.
As with any other legal document, using a DIY or pre-printed trust is risky and you should always consult with an estate planning attorney to ensure your specific goals and all legal requirements are met.
Contact me today to learn more about designing a lifetime asset protection trust for the benefit of your children or grandchildren.