Lifetime Asset Protection Trusts (LAPTs) are primarily designed to protect your loved ones and their inheritance from things like divorce, serious debt, devastating illness, and unfortunate accidents. At the same time, LAPTs can provide your heirs with a unique educational opportunity in which they gain valuable experience managing and growing their inheritance, while enjoying airtight asset protection.
To demonstrate how LAPTs can provide protection to families of all asset profiles, here is a true story involving a tragic life scenario. While the following events are entirely true, the individual’s name has been changed for privacy protection.
The flooded penthouse
Eric was staying at a friend’s apartment in New York City. The apartment was the penthouse of the building, and Eric decided to run himself a bath. While the bath was running, another friend called and invited Eric to go out with him, which he did.
At about 2 a.m., Eric came back to the apartment and discovered he made a huge mistake and left the bath running when he left the apartment. The resulting flood caused more than $400,000 in damage to the apartment and the one below it.
While there was insurance to cover the damage, the insurance company sued Eric for what’s known as “subrogation,” meaning the company sought to collect the $400,000 they paid out to repair the damage Eric caused to the property.
Because the flood was due to his negligence in leaving the bath running—a simple, but costly mistake—Eric was responsible for the damage. Now here’s where the inheritance piece comes into play and why it’s so important to leave whatever you’re passing on to your heirs in a protected trust. If Eric had received an inheritance outright in his own name, he would have lost $400,000 of it to this unfortunate mishap.
However, if Eric had received an inheritance in an LAPT, instead of an outright distribution, his inheritance would be completely protected from such a lawsuit—and just about any other threat imaginable.
Safeguarding your children’s inheritance
Wealth you pass down, if unprotected, can easily be lost. Most lawyers will advise you to place the money in a trust, which is the right thing to do. With an LAPT you can gift your assets to your children at the time of your death. When you gift an inheritance to your kids via an LAPT, your kids are the beneficiaries, but the trustee of the trust owns the assets, not your children.
Therefore, if your kids ever get divorced, file bankruptcy, have a major medical issue, or are ordered to pay damages in a lawsuit, they can’t lose their inheritance because they never owned it in the first place.
Now you may be worried that since a trustee owns the trust assets upon your death that individual may make irresponsible choices about when and how your kids can access their inheritance. Not to worry, you can build in protections to ensure your beneficiary has flexible use. You can even allow your beneficiaries to become Co-Trustees and then sole Trustees of their own LAPT.
And contrary to what some might think, LAPTs are not just for the mega wealthy. In fact, the asset protection they provide is even more valuable for those leaving behind a modest inheritance. With less money to pass on, it’s much more likely that the inheritance could be totally wiped out by a single unfortunate event, as opposed to a much larger inheritance, which might survive even multiple mishaps.
A priceless gift
If you wish to protect your child’s inheritance from all possible threats, while providing incentive to invest and grow the money rather than spend it, consider a Lifetime Asset Protection Trust for the ones you love. The trust’s highly flexible structure, combined with its bulletproof asset protection, make it one of the most valuable gifts you can give your children.
As your Personal Family Lawyer®, I can help you set up an LAPT to ensure that everything you worked so hard to leave behind offers the most positive and lasting impact possible. Start by scheduling a Family Wealth Planning Session today. Email me at Lou@lpowerslaw.com.