Legacy Trust

What is a Legacy Trust?

A legacy trust is an irrevocable trust that lets you set aside assets for future generations and functions as a second, protected estate. As your “second” estate, the legacy trust affords you some degree of asset protection. It has tax benefits and, and legacy trusts are not subject to the same Internal Revenue Service rules as a traditional estate.

Sometimes known as a wealth trust, a legacy trust is an irrevocable trust that lets you set aside assets for future generations. The legacy trust is a flexible asset protection and saving option that allows you to use funds for emergency situations or create an estate to pass on.

How a Legacy Trust Works

The legacy trust functions as a second, protected estate. It essentially removes assets out of your primary estate and into a secondary estate in the form of the trust. This places assets out of reach of creditors and protects them from estate and death taxes. You can set up the legacy trust and fund it during your lifetime via annual gifts.

Unlike some other trusts, the donor cannot be the trustee. A third party must be appointed as trustee, and this person is not supposed to be influenced by the grantor of the Trust. However, one good thing about this type of trust is that you do not have to wait until you are incapacitated or pass away to be able to use the legacy trust assets. In some ways the legacy trust acts like a savings account. The trustee can direct funds to be used for college tuition, or income for children or grandchildren or great-grandchildren. The legacy trust can be used for emergency medical or long-term care needs for you or sometimes for others of your choice.

When you pass away, the trustee can distribute the legacy trust assets. However, because this is not an inter-vivos (a transfer during life) trust, the assets could be subject to probate if not transferred in a timely and proper manner. The donor may want to strategically transfer assets to beneficiaries during his or her life to avoid this situation. This decision is best made after consultation with an attorney.

Legacy Trust