They say death and taxes are the only certainties in life. But under the right circumstances, a custom trust or foundation can negate one.
It’s unsettling but planning for your own death won’t make it come any quicker. In my experience, most clients actually feel great relief after their trust or foundation is formed and operational.
Here are the primary benefits you can expect when you set up a trust or foundation.
Estate Planning – If you die without a trust or foundation and you own assets in your personal name, your assets will need to go through a lengthy and costly probate process (even if you have a will). It’s common for the probate process to cost about 10% of the value of your assets, but it can be more. Moreover, your heirs will typically not have access to these assets during the probate process. Worse still, the probate process often leads to in-fighting amongst your heirs.
A trust or foundation allows you to control who gets what and when. These structures allow for multi-generational planning, so your heirs never actually own the assets, but get the benefit of them – this has many benefits, including massive generational wealth transfer tax savings when you set up a trust.
Succession Planning – Most High Net Worth Individuals rightfully spend a lot of time contemplating who will benefit from their wealth. But they often overlook who will actually control it once they die.
It’s important to determine who is qualified to control your assets when you set up a trust.
I covered many considerations and planning options (such as using a professional trust company or a private trust company) in this article.
Asset Protection – One of the most important lessons I’ve learned over the last twenty+ years working with High Net Worth Individuals is that keeping wealth is often more difficult than creating it.
Many don’t worry about asset protection until they become aware of a potential liability… which is often too late to legally protect their wealth. Courts can often reverse transfers to a trust when made after the transferor knows there is a reasonable anticipation of litigation.
You must prepare beforehand – a difficult hurdle for many busy High Net Worth Individuals to overcome because it often feels like wasted time, effort, and money when they set up a trust.
Trusts and foundations protect your wealth not only against your creditors but your heirs’ creditors as well so long as assets continue to be held in your trust or foundation.
Privacy – The ability to shield the extent of your wealth (what you own and how much) reduces your profile with potential creditors as they tend to seek easy targets. Privacy can prevent someone from ever filing a lawsuit. Privacy is essential to asset protection and a family’s security plan
Whether they realize it or not, High Net Worth Individuals face legitimate threats. Privacy can help them guard against:
- Frivolous lawsuits
- Extortion
- Fraud
- Kidnapping
Tax Benefits – In many circumstances, properly structured trusts and foundations offer significant income tax, estate tax, and wealth tax savings.
Assuming the trust or foundation is set up in a low or no income tax jurisdiction, income taxes, for example, would generally only be incurred when a distribution is made to a beneficiary. Because the trust or foundation continues to own the assets generation after generation, the assets effectively “pass” from one generation to the next without triggering transfer taxes, like estate or inheritance taxes. Wealth taxes can also typically be avoided by forming a trust or foundation in a country with no or low tax. Once transferred to a trust or foundation in such a jurisdiction, assets can then appreciate tax-free.
It’s important to understand that transferring assets to a trust or foundation might be a taxable event.
The specific tax consequences of transferring assets to a trust or foundation and the tax liability thereafter are highly dependent on your personal circumstances, including your country of residence and citizenship.
Setting up a trust or foundation is a daunting decision.
So much can go wrong.
It’s my job as an advisor to remove doubt and fear throughout the process of conceptualizing, forming, implementing, and maintaining a custom trust or foundation. Great time and care must be given to each client to ensure their trust or foundation achieves both short and long term goals.