Dynasty Trust Can Protect Your Assets Against Creditors in Arizona

Living Trusts can be essential when it comes to trying to set your family and other loved ones up for future generations.

If your family has one, you should not take this for granted. The reason being is that less than 2% of Americans have a living trust passed to them. Domestic asset protection trusts are not as common anymore.

Let's say you are someone that is considering setting up a living trust for your family. Or, you could be someone receiving access to a trust from your family.

Either way, a dynasty trust is one type of living trust that can help you and other members of your family out. If set up correctly all the future generations will be protected. One of the ways that it can do so is if you fall into debt or go into bankruptcy, this type of living trust can create a vehicle to protect assets against future creditors.

So, what is a dynasty trust? How can it protect you compared to other types of trusts?

Read our blog article to understand more about dynasty trusts (also know as asset protection trusts).

What Is a Dynasty Trust? 

Before we can go into how a dynasty trust can help you, you first have to understand exactly what this is.

A dynasty trust is a type of trust that is meant to last for multiple generations. Normally, these are made by people that have considerable wealth and enough assets where they can put this money aside and not miss it for decades. It is also an important estate planning tool to help protect trust assets against creditors or the beneficiaries themselves.

Dynasty trusts work differently than other types of trusts because, with those, there is usually a maximum amount of generations that it can be handed down to. However, dynasty trusts can last for as long as you wish to set one up. They are usually an irrevocable trust set up to protect trust assets.

In other words, if the person who creates the dynasty trust wants their family to have access to this for hundreds of years for transferring wealth they can do that.

What will happen is someone will have to set up the dynasty trust at first. Then, they can assign beneficiaries to said trust if they pass away. The trust can be set up as an irrevocable trust from the beginning or it can become irrevocable after the trust creator passes away.

It is generally recommended to assign your children as beneficiaries. If they do have issues with alcohol or other types of substance abuse you will be able to protect the assets in trust and preserve family wealth. Assigning your children may also have some tax benefits. The reason for this is when it comes to estate transfers and potential taxes that go along with that, there will likely be a longer period before the next transfer has to happen.

Estate tax in Arizona is not an issue at the moment but the law can always change. Tax planning is part of setting up a dynasty trust. It can help you take advantage of generation skipping transfer tax and lifetime exemption.

Picking a Trustee 

Something else that you have to know about dynasty trusts (or asset protection trust) is that with these, you need to assign a trustee to manage these assets. This allows one person to be solely responsible for what happens to these assets. Generally, the trustee is representing the interests of all of the beneficiaries.

What this means is that the person managing these assets is likely either going to be a responsible family member or a law firm that is acting in the best interest of your family and your other beneficiaries.

An important distinction here is to know that the trustee of this dynasty trust does not own the trust outright. We will get to why this is important below.

The main point of the trustee is to make sure the assets are being handled properly and that the proper protocol is conducted when transfers have to happen so assets transferred into the trust are protected.

Protecting Yourself From Creditors using a Living Trust

So, how does a dynasty trust protect you and your family from creditors?

Well, the main thing that you need to know here is that when it comes to creditors, they do not have the right to take a dynasty trust from you if a beneficiary on it owes a debt to them. Why is this the case?

Because technically, the trust is not owned by an individual. The trust is a separate entity with a group of people watching over it. This means that since it does not fall under one person's ownership, it is not considered an individual asset that is up for grabs during a bankruptcy or a garnishment of assets. It is also provides asset protection against divorce under Arizona law.

So, for example, let's say that you have a grandchild in the future that is bad with money and makes some estate planning mistakes. They end up getting into ridiculous credit card debt and mortgage debt that they simply cannot keep up with.

If they do not have the money to keep paying these regular monthly payments, then these creditors will start coming after them. Eventually, they may threaten to start garnishing their wages and take any assets that they have in the event of bankruptcy. Dynasty trust assets will be protected.

Now, in a normal bankruptcy, creditors will take every asset that you own to clear you of any debt that you may have. So, in some cases, this can include any savings and investments that you have.

However, because you have these assets in a dynasty trust that is managed independently, they can't be touched by these creditors. The reason for this is that it is considered its entity rather than something an individual can give away. The beneficiary's creditors will not have access to the assets in trust.

Create Your Dynasty Trust 

Making sure your assets are protected is one of the best reasons why you should create a dynasty trust if you have the means to do so. Staying our of Arizona court and avoiding probate is another one. Arizona has some of the best trust laws in the country.

Let's face it, you never know what the economy will be like or what future generations of your family may do. A dynasty trust may be the best way to give your loved ones a safety net if you have the financial means to put those assets to the side for years to come.

To set this up, you are going to need a dynasty trust lawyer and asset protection attorney. Call Citadel Law Firm to schedule a free consultation with us today. You can call (480) 565-8020 or click here to schedule.