The purpose of this section is to discuss what is structuring your wealth and how you can plan it.
The first step in structuring your wealth is to understand the different aspects of your life. This includes understanding what you want out of life, who you are, and how much money you need to live on. Once that has been established, the next step is figuring out what type of asset allocation will work best for your goals and risk tolerance level.
3 Different Types of Structures to Use for Wealth Protection
There are three different types of structures that can be used to protect your wealth.
The first type is the asset protection trust. This structure is designed to protect assets from potential creditors or judgment creditors. It does this by placing the assets into a trust, which is then managed by the trustee and not by the grantor.
The second type is an estate planning trust. This structure provides for the distribution of income, principal, and other property in accordance with instructions set forth in a will or trust agreement, such as a spendthrift provision or provisions for children born out of wedlock.
The third type is an irrevocable life insurance trust (ILIT). ILITs are designed to provide liquidity for beneficiaries while avoiding probate proceedings when you pass away.
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How Do the 3 Types of Structures Work?
A simple trust is a trust in which the trustee has the discretion to make distributions of income and principal to the beneficiaries.
A credit shelter trust is a type of simple trust that provides protection from estate taxes.
An irrevocable trust is a type of simple trust that can’t be changed or terminated.
Which Structure Should You Choose and Why?
Irrevocable trusts are often used to avoid estate taxes. These trusts can be set up as a grantor trust, a charitable lead trust, or an annuity trust. A grantor trust is when the person who sets up the irrevocable trust puts assets into the irrevocable trust and then transfers them to their children. A charitable lead trust is when the person who sets up the irrevocable trust puts assets into the irrevocable trust and then transfers them to a charity. An annuity Trust is when the person who sets up the irrevocable trust puts assets into an annuity that they will get monthly payments from for their lifetime and then after they die, it goes to their children or whomever they designate.