On October 11, 2013

While trusts are commonly regarded in Colorado and elsewhere as estate planning tools, they can also be useful as a way for people to protect their assets while they are still living. An asset protection trust, also known as a spendthrift trust, places assets into a living trust under which the trustor is also the beneficiary. The trustee is an independent third party, and distributions of the trust are restricted.

One benefit of spendthrift trusts is that claims against the trustor will not reach the trust’s assets, as the trustee is deemed the trust’s legal owner. When people want to set up this type of trust for their parents, they should consider how much money they will need each month, how they will fund their lifestyle, what liabilities they face and what type of insurance they have. As an example, a couple who is retired with a paid off home, who eats out four times a month and travels once every six months probably needs about $90,000 annually to sustain their lifestyle. If they travel more, eat out more or give family members extra money, they will increase their financial needs to about $150,000 yearly. If they have combined Social Security income of $50,000 annually, they would need an additional $100,000 each year in order to maintain their lifestyle. The couple would need about $2.2 million invested wisely in order to earn $100,000 annually in interest if they received a conservative annual 4.5 percent return on their investment.

Setting up a spendthrift trust can protect assets in some situations. A probate attorney might be able to help clients determine if this is an appropriate option for them.

Source: Forbes, “What Are The Wealthiest Families Doing About Asset Protection? Part 3“, Todd Ganos, October 05, 2013

Categories: Trust Administration

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