What do you do when you have some assets you want to leave to your children or grandchildren, but still need to protect them against interference from third parties? You create a trust. In fact, trusts are established precisely to provide legal protection for a trustor's assets, as well as to ensure that those assets are distributed as per the trustor's wishes. With so many different types of trusts out there, it is easy to miss some rarer ones in the maze that might actually come in handy one day. Take a look at these 3 lesser known Maryland Trusts.
#1. QTIP Trust
The Asset Protection Trust is one of the rarest in the U.S… So rare, in fact, that it is only available in 16 States (not, unfortunately, including Maryland). Be that as it may, married couples can still participate in asset protection through an irrevocable inter vivos QTIP trust or the entirety immunity trust. The general idea is to protect assets from the predatory hands of creditors. This is done by making the trust irrevocable for a certain period, during which the trustmaker is not the beneficiary. Once the trust is terminated and there is no risk of creditor attack presently, the trustmaker gets back control of the undistributed assets.
#2. Spendthrift Trust
A spendthrift trust is one of the most effective tools for ensuring that the heir(s) does not misuse their inheritance once you are gone. It is also ideal for protecting the family's money from creditors, mainly because the beneficiary does not control the funds in a spendthrift trust. Rather, it is an independent trustee who determines how the wealth will be expended on behalf of the recipient.
#3. Intentionally Defective Grantor Trust – IDGT
An Intentionally Defective Grantor Trust was born as a result of a loophole that appears when measuring estate tax and income tax. It is basically designed to exclude the underlying trust assets from estate tax liability. The trust is irrevocable and should be entrusted to a non-interested party to avoid its accidental inclusion into the grantor's estate. Without reductions for income taxes, the assets are able to grow significantly before the beneficiaries (typically children or grandchildren of the grantor) take control.
The best way to ensure that you are drafting the right type of trust is to consult a legal professional who is experienced in those matters. Indeed, there are many legal implications that can significantly alter the value of an asset before the designated beneficiary receives ownership. For any assistance on this and any other family law issue, the Tyra Law Firm has your back. Contact us today at (301) 315-0811.