Trusts and asset protection

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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FBN2014
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Trusts and asset protection

Post by FBN2014 » Tue Dec 12, 2017 1:56 pm

Trust language specifies that after main beneficiary dies that the two remainder beneficiaries can receive their share as a total distribution after they reach age 25 if they request it. So they have the option of keeping some or all of their share in the trust per their request. Does this language offer the remainder beneficiaries asset protection from divorce or creditors? If not, can anything be done to provide asset protection? The trust is irrevocable since the grantor is deceased.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

bsteiner
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Re: Trusts and asset protection

Post by bsteiner » Tue Dec 12, 2017 2:47 pm

Does the current beneficiary have a power of appointment that he/she can exercise it to appoint the remainder in further trust rather than outright at 25?

If not, can the trustees decant the trust to keep it in further trust for the remainder beneficiaries?

WannabeAgAlum
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Re: Trusts and asset protection

Post by WannabeAgAlum » Tue Dec 12, 2017 3:04 pm

<<Does this language offer the remainder beneficiaries asset protection from divorce or creditors?>>

No.

<<If not, can anything be done to provide asset protection? The trust is irrevocable since the grantor is deceased.>>

Yes, as bsteiner indicates. Also, it is worth looking at state trust modification statutes. Be wary of gifting issues. For example, if the beneficiary appoints the $ further in trust, or signs anything that could be construed to be the beneficiary agreeing to having the property kept in trust without the ability to get it back out with a simple request (which can happen with decanting if the trustee wants the beneficiaries to sign off on the decanting), he/she could be deemed to be giving the assets to that trust. The terms of the new trust would dictate the extent of the gift. Generally speaking, the more protected the beneficiary is from creditors under the new terms, the more likely there is a gift. None of the gifting issues really matter, however, if the beneficiary is not in an estate/gift taxable situation.

Wannabe

FBN2014
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Re: Trusts and asset protection

Post by FBN2014 » Tue Dec 12, 2017 4:37 pm

bsteiner wrote:
Tue Dec 12, 2017 2:47 pm
Does the current beneficiary have a power of appointment that he/she can exercise it to appoint the remainder in further trust rather than outright at 25?

If not, can the trustees decant the trust to keep it in further trust for the remainder beneficiaries?
No, there is no power of appointment. This is a Massachusetts trust which I believe does not have a decanting statute. Not sure if there are any good options to keep in trust.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

afan
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Re: Trusts and asset protection

Post by afan » Wed Dec 13, 2017 8:44 am

I am no expert on trust law, or any other kind of law, but I am pretty sure it is possible to decant trusts in Massachusetts. Naturally, what could happen in a particular case depends on the details. Sounds like a question for an expert attorney who knows MA law.
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bsteiner
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Re: Trusts and asset protection

Post by bsteiner » Wed Dec 13, 2017 10:08 am

FBN2014 wrote:
Tue Dec 12, 2017 4:37 pm
bsteiner wrote:
Tue Dec 12, 2017 2:47 pm
Does the current beneficiary have a power of appointment that he/she can exercise it to appoint the remainder in further trust rather than outright at 25?

If not, can the trustees decant the trust to keep it in further trust for the remainder beneficiaries?
No, there is no power of appointment. This is a Massachusetts trust which I believe does not have a decanting statute. Not sure if there are any good options to keep in trust.
As to whether you can decant in Massachusetts, see Morse v. Kraft, https://scholar.google.com/scholar_case ... s_sdt=6,33.

If the trustees don't think they can decant, or don't want to decant, other possibilities to consider are modification under Section 412 of the Massachusetts Trust Code based on changed circumstances, https://malegislature.gov/Laws/GeneralL ... Section412 (though you would have to show that there are changed circumstances), or distributing the trust assets to the current beneficiary (if that won't result in any additional estate tax in the current beneficiary's estate, and you're not concerned about creditors, spouses, Medicaid, or the current beneficiary leaving the assets in a way other than in trust for the subsequent beneficiaries).

FBN2014
Posts: 444
Joined: Sat Mar 08, 2014 3:07 pm

Re: Trusts and asset protection

Post by FBN2014 » Wed Dec 13, 2017 10:41 am

bsteiner wrote:
Wed Dec 13, 2017 10:08 am
FBN2014 wrote:
Tue Dec 12, 2017 4:37 pm
bsteiner wrote:
Tue Dec 12, 2017 2:47 pm
Does the current beneficiary have a power of appointment that he/she can exercise it to appoint the remainder in further trust rather than outright at 25?

If not, can the trustees decant the trust to keep it in further trust for the remainder beneficiaries?
No, there is no power of appointment. This is a Massachusetts trust which I believe does not have a decanting statute. Not sure if there are any good options to keep in trust.
As to whether you can decant in Massachusetts, see Morse v. Kraft, https://scholar.google.com/scholar_case ... s_sdt=6,33.

If the trustees don't think they can decant, or don't want to decant, other possibilities to consider are modification under Section 412 of the Massachusetts Trust Code based on changed circumstances, https://malegislature.gov/Laws/GeneralL ... Section412 (though you would have to show that there are changed circumstances), or distributing the trust assets to the current beneficiary (if that won't result in any additional estate tax in the current beneficiary's estate, and you're not concerned about creditors, spouses, Medicaid, or the current beneficiary leaving the assets in a way other than in trust for the subsequent beneficiaries).
Thank you. When a trust is decanted is it normally required to notify the beneficiaries, provide justification and get their approval if the trust language does not specifically address the process of decanting? I see where Section 412 requires court approval. Hoping to avoid that as I imagine it could get costly.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

FBN2014
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Joined: Sat Mar 08, 2014 3:07 pm

Re: Trusts and asset protection

Post by FBN2014 » Tue Jul 10, 2018 11:26 am

As a follow up to an older post. Perhaps bsteiner can weigh in. Section 111 of the Massachusetts UTC allows for a non judicial settlement agreement. I am wondering if this would achieve the desired asset protection result by having all parties agree to remove the trust language that remainder beneficiaries over the age of 25 can request full distribution and allow the remainder beneficiaries to keep assets in trust but they can be trustees of their own sub-trust so they have access as desired.
Last edited by FBN2014 on Tue Jul 10, 2018 4:10 pm, edited 1 time in total.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

bsteiner
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Re: Trusts and asset protection

Post by bsteiner » Tue Jul 10, 2018 1:21 pm

FBN2014 wrote:
Tue Jul 10, 2018 11:26 am
As a follow up to an older post. Perhaps bsteiner can weigh in. Section 111 of the Massachusetts UTC allows for a non judicial settlement agreement. I am wondering if this would achieve the desired asset protection result by having all parties agree to remove the trust language that remainder beneficiaries over the age of 25 can request full distribution and allow the remainder beneficiaries to keep assets in trust but they can ne trustees of their own sub-trust so they have access as desired.
That's not at all like the items enumerated in that section. Also, even if you could do it under that section, the need for consent of the beneficiaries might jeopardize it.

As previously noted, you might look to see if the trust can be decanted, or whether the trust assets can be distributed to the current beneficiary without significant risk of adverse consequences.

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