Protect Your Children’s Inheritance With A Lifetime Asset Protection Trust

December 16, 2022

Lifetime Asset Protection Trust

While most parents want to leave their assets or a financial inheritance for their children, determining how to set things up or what may be the right decision for the family can be challenging. However, when a child receives a significant sum of money through an inheritance at one time without proper planning, many issues can come with it. One estate planning option that may be suitable is a Lifetime Asset Protection Trust (LAPT). If you would like to learn how to set up this trust to protect your child’s future inheritance, consider contacting an experienced estate planning attorney from the Johnson Law Group by calling (720) 463-4333 to schedule a consultation.

What You Need To Know About a Lifetime Asset Protection Trust

A Lifetime Asset Protection Trust, known simply as an LAPT, is a specific type of estate planning instrument created to protect a child’s inheritance from creditors and certain potential problems that can include debt, accidents, divorce, and illness. With this type of trust, instead of the estate going straight to the beneficiary, the trust will hold the assets and distribute those assets to the children. The assets will not be owned by the beneficiaries but, rather, by the trustee. A trustee, according to the Internal Revenue Service (IRS), is a person or entity that receives property or assets to hold them for the benefit of the beneficiary.

How Does a Lifetime Asset Protection Trust Work?

While there are numerous trusts that a person can use to protect his or her child’s inheritance, the LAPT is a useful tool to not only hold certain assets but also protect them from unintended future problems. These problems can include poor decisions, being taken advantage of by other, accidents, and other issues that can impact the child’s future judgment and his or her ability to use the assets properly. Through this type of trust, a parent can gift his or her child the intended inheritance, but the trustee will own the assets, not the children. As a result of not legally owning the assets, the children will be protected from losing those assets if issues arise.

The Advantages of a Lifetime Asset Protection Trust

The LAPT can be useful if a beneficiary has extensive debt or is dealing with other challenging situations, such as divorce. In fact, this trust offers numerous benefits that can help to protect a child’s inheritance well into the future, including the following:

  • Divorce protection
  • Creditor protection
  • Incapacitation protection
  • Leftover protection

Divorce Protection

When a person leaves his or her beneficiaries an inheritance through an LAPT, the beneficiary will have extra protection if he or she marries and later must go through a divorce. An LAPT maintains separate assets so that they will not be considered marital property to be divided between the spouses as part of the divorce proceedings.

Creditor Protection

An LAPT can also protect the beneficiary against creditors through its spendthrift provision. According to the Colorado General Assembly, this provision protects against the heir’s creditors by preventing them from reaching into the trust.

Incapacitation Protection

Because a trustee controls this trust, the trust will be protected not only from creditors and former spouses but also from incapacitation and illness. If the beneficiary cannot handle the trust on his or her own, the trustee can refuse to distribute assets to the beneficiary until he or she receives proper treatment and is no longer incapacitated. The ways in which the beneficiary may be incapacitated can include certain illnesses and substance abuse problems.

Leftover Protection

Typically, an LAPT will last for the heir’s lifetime. However, when a person creates this kind of trust, he or she will also be responsible for indicating what will be done with the leftover assets at the end of the beneficiary’s life. This means that the creator of the trust can give his or her heirs control over what to do with the final issuance of assets or handle this part for them.

In addition, some people add guidelines for what will happen to the trust based on certain scenarios, such as if the beneficiary wants to start a business, buy a home, or get married. Other people may include further guidelines for investment decisions.

Lifetime Asset Protection Trusts Are Not Just for the Wealthy

Although people tend to believe that trusts are only for those who have great wealth and many assets, trusts can be beneficial for anyone. In fact, an LAPT can be helpful for those with even a meager inheritance, as the trust can be used to educate children about how to handle their assets and grow their wealth.

With the added protections provided by this type of trust, family members can rest assured that a lawsuit or emergency will not put the beneficiary’s inheritance at risk. Discussing the available trusts for your situation with an experienced estate planning lawyer from the Johnson Law Group may help to answer your questions and give you a better understanding of how a Lifetime Asset Protection Trust can help your family.

Contact an Estate Planning Attorney and Start Planning for the Future Today

If you have wanted to create a trust for your beneficiaries or would like further information regarding what the process entails, a skilled estate planning attorney may be able to help. Knowing which type of trust is right for your family and making sure that it will meet your family’s future needs will help when you are ready to complete your estate plan. If, for example, the children will want to use most of their inheritance for bills and other expenses, an LAPT may not be the right choice. However, if you want your children to grow their assets over time, then you may want to establish this type of trust. If you are ready to set up a Lifetime Asset Protection Trust or have more questions, consider contacting an experienced estate planning attorney from the Johnson Law Group today by calling (720) 463-4333 to learn more.

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Written by Family Law Attorney Myles S. Johnson
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