Grantor Access to Irrevocable Trusts Reduces Concerns Over Completed Gifts

When considering irrevocable trusts, one major concern for moderately wealthy individuals is giving up control and access to their assets. However, there are techniques available to grantors that can provide them with access to trust assets, making the decision to create an irrevocable trust easier.

Irrevocable trusts offer numerous benefits when properly designed and funded, including asset protection against lawsuits, bankruptcy, and other financial risks. They also allow for tax-free generational wealth transfer, impartial asset management, continuation of the grantor’s wishes, family business continuation, and tax advantages in life insurance trusts. Despite these advantages, grantors often hesitate to give up complete control of their assets, as it may leave them concerned about their future financial security.

Solutions for Grantor Access to Trust Assets:

  1. Spousal Lifetime Access Trusts (SLATs)

In this technique, one spouse establishes an irrevocable discretionary trust that names the other spouse as the primary beneficiary. The other spouse then establishes a separate irrevocable discretionary trust that names the first spouse as the primary beneficiary. Each trust can purchase a life insurance policy on the other spouse’s life to ensure that the value of the benefits remains available if one spouse passes away. This technique can also be used among siblings, relatives, or close friends.

  1. Special Power of Appointment Trust (SPAT)

A trust grantor can create access to trust assets by granting limited lifetime powers of appointment to non-fiduciary, non-beneficiary individuals. These powers can include instructing the trustee to appoint assets to the grantor, ordering a trust loan to the grantor, or reimbursing tax payments. The grantor can never be named a beneficiary of the trust.

  1. Third-Party Irrevocable Trust (Hybrid DAPT)

In this type of trust, the grantor is initially not a beneficiary, making it a non-self-settled trust. However, the trust document appoints a special power to a non-fiduciary, non-beneficiary individual (such as a trust protector) to add beneficiaries from a specified class, which may include the grantor’s descendants.

  1. Domestic Asset Protection Trust (DAPT)

DAPT is a type of self-settled trust that is legally recognized in 19 states. Residents of these states can benefit from asset protection, although it is advisable for the grantor to become a beneficiary after a certain period to protect against bankruptcy laws. For non-residents, establishing a DAPT in a DAPT state can still offer some level of asset protection.

  1. International Asset Protection Trust (IAPT)

For assets that can be moved out of the United States, an international trust offers the best asset protection. These trusts can be complex and expensive to administer, but they provide numerous benefits in addition to asset protection. The grantor can also be a beneficiary, and they have favorable fraudulent conveyance laws and investment flexibility.

To learn more about estate planning, wealth building, and asset protection, visit the Law Office of Thomas J Swenson.

Disclaimer: This information is for educational purposes only. It does not constitute personalized legal advice, and individuals should consult with a qualified attorney for personalized planning or advice.

IRS Circular 230 Disclosure: The information provided regarding federal taxes in this article is not intended or written to be used for the purpose of avoiding penalties or promoting specific transactions. Please seek professional tax advice for any tax-related matters.

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