After receiving a settlement, who is considering your clients’ future financial benefits and goals? Milestone helps prepare for possible risk and preserve the long-term value of a large sum of money through domestic asset protection trusts. There are many options when establishing a DAPT, and they vary from state to state. A few examples are below.
1. Grantor-Style DAPT
- This type of trust is irrevocable, naming the creator of the trust as the grantor and the sole lifetime beneficiary of the trust.
- The trust creator can have contingent beneficiaries and the power to appoint the final distribution of the trust assets upon their death.
- They can not be named as the trustee in addition to the grantor, but can serve as the investment trust advisor.
- A Grantor style DAPT is expressly for the creators benefit only, providing asset protection, and should not affect their tax situation.
- Since it is considered a grantor trust by the IRS, all income and gains of the trust are reported on their individual tax return.
2. A Third-Party Irrevocable Trust
- This type of trust is irrevocable, naming the creator of the trust as the grantor.
- Names the beneficiaries as their legal spouse and/or children, as well as gives options for determining how the trust should ultimately distribute.
- Can have a term of the creators lifetime, the lifetime of their children, or perpetuity.
- Allows the creator to be the trustee, although this is not recommended, or the investment trust advisor.
- Could be set up to have, or not have, income tax advantages.
3. Hybrid DAPT
- A hybrid DAPT is a third-party irrevocable trust (see above) that can be turned into a DAPT. A trust protector has the power to later add you or remove a beneficiary.
This content should not be viewed as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Milestone Consulting, LLC, is not engaged in the practice of law or accounting.