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How to use trusts to protect wealth from tax, other threats

On Behalf of | Feb 20, 2020 | Estate Planning

Some people in Pennsylvania might want to consider whether they should use a trust protector for their child’s trust. A trust can protect assets from a stepparent who might inherit them and pass them to their own children or from a spouse. However, a trust protector can step in if the trust is under a threat from divorce, as the result of a lawsuit or for other reasons.

There are other ways to protect assets from outside threats or from estate and gift taxes. Some people may assume that they will not be affected by estate tax, but the approximately $11 million exemption is due to drop to around $5 million in 2026. It could go well below $1 million. A dynasty trust is one way to protect a family from gift or estate tax for generations while still allowing them access to assets and letting wealth grow. People might also want to consider an asset protection trust, which places control with an outside trustee and can also have protectors. Another option is a spousal lifetime access trust. This does not offer as much protection as an asset protection trust but gives the couple greater control.

Failure to plan effectively can be costly. This was the case for actor James Gandolfini, whose estate planning errors cost $44 million in estate tax on a $70 million estate.

People who are creating an estate plan may want to consult Pittsburgh, Pennsylvania estate planning attorneys. Many people may not realize there are estate planning strategies that can help them. For example, a person may think that trusts are only for wealthy people but might have a child who may spend irresponsibly. Assets could be placed in a trust for that child, and distributions could be made only under certain conditions or at the trustee’s discretion.