Pre-Inheritance Trust
Another smart way to keep your assets safe: a Pre-Inheritance Trust, or PIT. Back in the day, rich folks used these trusts to dodge hefty estate taxes while setting up their kids with a nice inheritance. But over time, the PIT has turned into a total rockstar for protecting your wealth, no matter your bank account size!
Let’s break down the two big perks of Pre-Inheritance Trusts (PITs) so you can see how they work for you and your family.
Saving on Estate Taxes with a Pre-Inheritance Trust
Picture this: the U.S. government gives you a nice little break when passing down your wealth. Right now, every person gets about $5.5 million they can hand off to their heirs without Uncle Sam taking a cut through estate taxes. For a married couple, that doubles to around $11 million. Pretty sweet, right? You can use this exemption when you pass away, or you can start using it while you’re still kicking. Here’s where the Pre-Inheritance Trust comes in clutch. You can move some or all of that $5.5 million into a PIT today, and whatever’s in there grows free of estate taxes—forever. So, let’s say you pop $5 million into the trust now, and by the time you’re gone, it’s ballooned to $25 million. Your heirs get every penny of that, no estate tax bill in sight.
Now, I hear you saying, “Hold up! If I give my kids that money now, they’ll blow it on dumb stuff!” Fair point. But with a PIT, you’re not handing them the cash directly. You’re putting it in the trust, and you get to decide when and how they can touch it—like when they’re older or in small doses. So, you shrink your taxable estate now, dodge a bigger tax hit later, and still keep your kids from turning that money into a sports car collection overnight. Plus, you can set up the PIT to shield that money from your kids’ creditors—now and down the road.
Protecting Your Stuff with a Pre-Inheritance Trust
The asset protection part? Super straightforward. Once you gift money to the PIT, it’s not yours anymore. If someone sues you later, they can’t touch what’s in the trust because, legally, it’s out of your hands. Same deal for your kids. Since they’re just beneficiaries—not owners—of the trust, their creditors or lawsuit judgments can’t grab the assets either, at least not until the money’s handed out on your terms. You might set it up for one big payout or trickle it out in smaller chunks over time. Either way, the PIT’s like a fortress keeping your wealth safe from legal headaches—yours or your kids’.
A Few Extra Things to Know About PITs
- To make this work as a legit gift (and use up that exemption), you can’t be the one running the trust. You’ll need to pick a Trustee or Protector—maybe a buddy, your financial advisor, your lawyer, or even certain family members.
- No pressure to dump a ton of cash in right away. You can start small or add to it bit by bit over time.
- Heads up: PITs are irrevocable, meaning once stuff goes in, you can’t just take it back without tax headaches. But you can pull out the profits or the interest the assets earn.
- You can load a PIT with all kinds of goodies—bank accounts, real estate, even shares in your businesses like corporations or LLCs.
- Here’s a cool twist: you can still be the boss of those companies the PIT owns. As the officer or manager, you could pay yourself a salary or other perks for running them, keeping you in control of the assets. Your kids could work there too, earning whatever you decide to pay them.
- Set it up right, and a PIT is like an iron wall against creditors, ex-spouses, or anyone else sniffing around your wealth. It’s way better than just handing your kids a pile of cash, especially if you want to keep it away from their future exes or stepkids.
PITs are picking up steam, especially as more middle-class families see their estates grow. If you’re curious about how one could lock down your assets while you still call the shots, give us a shout—we’d love to chat!
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ASSET PROTECTION, INC.