Third-party trusts integrate estate and asset-protection planning.
The Tax Adviser › Vol. 36 Nbr. 8, August 2005
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Third-party trusts integrate estate and asset-protection planning.
A third-party trust (TPT) enables a client to maintain and protect businesses and investments, while reducing potential estate tax liability and exposure to creditors. This article explains how TPTs work and explores strategies for accomplishing these goals.
For several years now, taxpayers have used a combination of trusts, limited liability companies (LLCs), limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) as vehicles for owning property. They have proven to be useful as a way to achieve certain gift, estate and asset-protection planning goals. One tool often overlooked in this regard, however, is the irrevocable third-party trust (TPT), which combines the benefits of owning assets and possibly conducting a business, without the drawbacks of estate taxation and accessibility by creditors. This article explains how TPTs are settled, taxed and integrated with other estate planning and asset-protection strategies. Overview A TPT allows a client to place property into a structure via a tax-free sale, while continuing to retain control over the property. The client may continue to use the property and receive distributions of the income or principal therefrom. A trustee has total discretion, without limits, to make these distributions. Also, in most cases, the client personally retains the ability to direct the TPT to make transfers to any other person. The TPT can accomplish all this while protecting the property from potential future lawsuits. Further, it is typically designed to hold the property outside of t...See the full content of this document
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