Legacy Trust

What is a Legacy Trust?

A legacy trust is an irrevocable trust that lets you set aside assets for future generations and functions as a second, protected estate. As your “second” estate, the legacy trust affords you some degree of asset protection. It has tax benefits and, and legacy trusts are not subject to the same Internal Revenue Service rules as a traditional estate.

Sometimes known as a wealth trust, a legacy trust is an irrevocable trust that lets you set aside assets for future generations. The legacy trust is a flexible asset protection and saving option that allows you to use funds for emergency situations or create an estate to pass on.

How a Legacy Trust Works

The legacy trust functions as a second, protected estate. It essentially removes assets out of your primary estate and into a secondary estate in the form of the trust. This places assets out of reach of creditors and protects them from estate and death taxes. You can set up the legacy trust and fund it during your lifetime via annual gifts.

Unlike some other trusts, the donor cannot be the trustee. A third party must be appointed as trustee, and this person is not supposed to be influenced by the grantor of the Trust. However, one good thing about this type of trust is that you do not have to wait until you are incapacitated or pass away to be able to use the legacy trust assets. In some ways the legacy trust acts like a savings account. The trustee can direct funds to be used for college tuition, or income for children or grandchildren or great-grandchildren. The legacy trust can be used for emergency medical or long-term care needs for you or sometimes for others of your choice.

When you pass away, the trustee can distribute the legacy trust assets. However, because this is not an inter-vivos (a transfer during life) trust, the assets could be subject to probate if not transferred in a timely and proper manner. The donor may want to strategically transfer assets to beneficiaries during his or her life to avoid this situation. This decision is best made after consultation with an attorney.

Legacy Trust

Benefits of a Legacy Trust

As your “second” estate, the legacy trust affords you some degree of asset protection. It has tax benefits and is not subject to the same Internal Revenue Service rules as a traditional estate. Except for assets transferred at the time of death, the legacy trust is not subject to probate or administered with court supervision. That means activities associated with the trust assets are kept confidential and out of public record.

Because it is considered separate and outside of your assets, the legacy trust acts as a wall, protecting your assets against divorcing spouses of children, creditors, and judgments against you and your family. Taking advantage of this type of protection can be complicated. How and when the legacy trust is set up may make it vulnerable to certain types of credit or legal action. This is another issue which ought to be discussed with an attorney.

Detriments of the Legacy Trust

Although there are many reasons to consider a Legacy Trust as part of your Estate, Tax and Asset Protection Planning, you need to be aware that there are some issues with the use of this type of trust.

First, if the distributions are done incorrectly, there could be a probate situation arise which would not be beneficial to you or your ultimate beneficiaries.

Second, you will lose control of the asset you transfer to the Legacy Trust. This is an essential point in making sure the Legacy Trust is valid. This trust must be Irrevocable with a third party (meaning not you) Trustee. Some like to think that they will be able to “control” or “manipulate” the trustee and sometimes this is the case. However, please keep in mind that what you expect to happen sometimes does not.
Because the Trust is irrevocable, you need to make sure it is drafted and says the correct information before it is executed or signed. Depending upon the drafting, you may or may not be able to update the trust as it has to do with changes which happen in the law which are out of your control.

The Legacy trust is a fairly complicated trust. One must understand the uses and limitation of the trust and be ready to live by some intricate though not necessarily difficult rules.

Getting Legal Help

While the legacy trust offers a number of benefits and a high level of flexibility for an irrevocable trust, setting one up requires a high level of technical expertise. There are several of the tax and legal issues that are unique to the legacy trust. Therefore, it’s important to find a trust company and/or and estate planning attorney who is familiar with the legacy trust and capable of advising you about whether it’s the right choice for your situation.

The attorneys with Beyer, Pongratz, and Rosen have vast experience with every aspect of estate planning, probate, and business structuring. We are here to help! Give us a call to get started 916-369-9750 or contact us online to set up a FREE consultation. We look forward to working with you.

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