If you are looking for a way to retain control of assets and obtain estate tax advantages, you may want to consider a self-settled trust. With self-settled trusts, those who live or own property in California or other states can name themselves as the beneficiary to the trust that they have created. Assets that are placed in the trust are generally considered to be outside of your estate for tax purposes.
Obtain greater protection against creditors
A self-settled trust is an irrevocable trust, which means that it can offer greater protections against creditor claims. Generally speaking, a creditor can’t seize assets that you have limited control over. However, such protection may not exist if a trust is formed outside of your home state.
At a minimum, you should have some connection to the state where the trust is formed. It is important to note that a trust may also be less effective at protecting assets if the government attempts to seize assets or if you file for bankruptcy.
It may be possible to decant
Decanting occurs when you transfer assets from one irrevocable trust into another trust. This typically allows you to change the terms of how these assets are distributed or who can benefit from them without obtaining permission from beneficiaries themselves. As a general rule, decanting rules are more favorable for assets in a self-settled trust compared to property held in a traditional irrevocable trust.
You can name yourself as a beneficiary later
There is typically no need to name yourself as a primary beneficiary when you first create the self-settled trust. Instead, you can add language to the document that you are to be added as a beneficiary when a certain event occurs or when another party deems it to be appropriate to do so.
Trusts may provide you with multiple financial and other benefits while alive and after your death. To learn more about how trusts may fit into your estate plan, it may be worthwhile to speak with an experienced attorney.