What can a Spendthrift Trust do for you?
Protection of Assets
The two greatest perils to wealth are litigation and taxation. In a litigious culture such as ours, we are only a heartbeat away from an asset-depleting lawsuit. Business owners are especially at risk with a one in four probability of being sued.
A Spendthrift Trust puts a lock box around your assets to protect them against judgments, levies, and lawsuits. That same protection is not afforded to those using a statutory LLC or Corporation, both of which can easily be pierced in a lawsuit with a good attorney. Should that happen, your assets of a lifetime are subject to court judgments and loss. However, assets placed in a Spendthrift Trust cannot be “pierced” since the Trust is not a statutory entity.
Build Generational Wealth
A Trust is a superb legal avenue to pass assets down from one generation to the next. You don’t have to look further than Rupert Murdoch or Donald Trump to see how wealth can trickle down and set up future generation for success. Assets that may be included in a Trust are bank accounts, precious metals, digital currency, real estate, stock market investments, annuities, a business asset, or anything else which has a monetary value.
Beneficiaries who receive generational wealth start off with a substantial financial advantage over those who do not. This will help them avoid costly debt and instead begin on solid financial foundation.
Maximize Tax Deferment
Another big benefit is that a Spendthrift Trust can allow for an indefinite tax deferral since it complies with Internal Revenue Code (IRC) Section 643. Passive income that goes through a proper drafted Spendthrift Trust can be deferred, similar to what occurs in a Roth IRA! So you can delay tax payments on passive income.
Taxes on passive income, such as Interest Income, Dividend Income, Capital Gains, and Royalty Income can be DEFERRED. This income will not be taxed until the funds are distributed to a Beneficiary. Like putting yeast in a bowl of dough, it will allow your assets to grow and grow like never before.
There is a substantial benefit to deferring taxes, because this allows the entire principal and any accumulated earnings to compound tax deferred. The compounding effect is dramatic over an extended period of time and makes a big difference in the accumulation of a financial nest egg.
How is the Spendthrift Trust able to do this?
The Spendthrift Trust uses five strong legal pillars that make it an effective tool:
Spendthrift
The Spendthrift Provision of the Trust is the critical element of the document. The Trust Corpus cannot be penetrated to reach the assets of the Corpus. Except for fraud, no judge or court may issue turnover orders against a properly constructed Trust. The Spendthrift nature of the Trust locks in asset protections against judgments, levies, and lawsuits.
Complex
In order to serve the beneficiaries of the Trust and protect the Corpus, the Trust is Complex in nature, however the Spendthrift Trust plainly states terms and conditions to make it easier to understand and use.
Discretionary
Non-Grantor
The creator of a Spendthrift Trust has no management of the corpus and is not a beneficiary. This keeps the Trust from becoming a living Trust which would have no tax advantages or asset protection.
Irrevocable
Assets are irrevocably transferred to Trust and cannot revert to the one who is making the transfer to the Trust. This protects its tax deferring nature.
“I will not use anyone else.”
Independent Financial Services is extremely knowledgeable about all aspects of a Spendthrift Trust and they are wonderful to work with. They answer all my Trust questions with thoroughness and each year provide a set of financials and accurately file my Trust tax returns.
Bill S.
Trust IFS Client
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