Beneficiary Controlled Asset Protected Irrevocable Trusts
by Arizona estate planning attorneys Richard Keyt (Rick, the father) and Richard C. Keyt (Ricky, the son)
This article is for people who are considering giving valuable assets to their loved ones before and after death. There are two ways you can transfer your valuable assets to another person.
- Unprotected way. This occurs when the current owner transfers ownership of assets to another person. If the new owner gets sued the creditor may get the assets. If the new owner gets married and divorced the ex-spouse may get one half of the assets. If the new owner files for bankruptcy, the bankruptcy trustee gets the assets.
- Asset protected way. This occurs when the current owner transfers ownership of the assets to an irrevocable beneficiary controlled asset protected trust (a BCAPT) the beneficiary of which is the child or loved one. If the beneficiary gets sued the creditor cannot get any of the assets because the beneficiary does not own the assets in the trust. If the beneficiary gets married and divorced the ex-spouse cannot get any of the assets because the beneficiary does not own the assets in the trust. If the beneficiary files for bankruptcy, the bankruptcy trustee cannot get any of the assets because the beneficiary does not own the assets.
When assets are owned by a BCAPT of which your child or loved one is the beneficiary the assets cannot be reached or obtained by any of the following:
- the beneficiary's creditors
- the beneficiary's ex-spouse
- a bankruptcy court
Unprotected Example: Recently a man who had a large judgment called me and said he inherited $250,000 when his mother died. She left him the money outright. When he deposited the money in his bank account all of it went to the man's judgment creditor who had garnished the bank account.
Asset Protected Example: If the man's mother had left the $250,000 to the man in a beneficiary controlled asset protected trust the creditor could not have gotten any of the money because legally the $250,000 would have been owned by the trust, not by the man. The trust could have bought a home and the man could have lived in the home rent free or rented the home. The man as trustee of the trust could have used the rental income to pay his bills.
Should You Create a BCAPT?
Whether to use a BCAPT is a no brainer. As estate planning attorneys we recommend that all people who have assets with substantial value use a BCAPT to leave assets while alive or on death to their children and loved ones. You have two options as to when you create a BCAPT: