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Asset Protection for Palo Alto Area High Net Worth Individuals and Families


Seven ways to protect your assets from creditors

When planning your estate, your primary objective is probably to pass on as much wealth to your heirs as possible. And if you’re like most people, you want to reduce or eliminate estate taxes as well. Here are seven ways to safely protect transferred assets from creditors:

  1. Outright gifts
  2. Family limited partnerships (FLPs)
  3. Irrevocable life insurance trusts (ILITs)
  4. Qualified personal residence trusts (QPRTs)
  5. Inter vivos qualified terminable interest property trusts (QTIP)
  6. Charitable remainder trusts (CRTs)
  7. Grantor retained annuity trusts (GRATs)

These are just a few of the ways proper estate planning can also safeguard your assets from creditors. Call us at (650) 325-8276 or use the form at right to let us know your needs.

Quick overview of a few asset protection methods

Outright gifts. An outright gift protects a transferred asset from your creditors. But you’ll lose all economic interest in and control over the asset

Family limited partnerships (FLPs). A FLP is an excellent asset-protection device because it limits a limited partner’s creditor’s ability to attach partnership assets to satisfy a debt. Creditors generally can obtain a charging order only against a limited partner’s interest in a partnership. A charging order would permit a creditor to receive distributions only when they’re made from the partnership, and the general partner could choose not to make distributions. The creditor could even end up with taxable income without any cash distributions.

Irrevocable life insurance trusts (ILITs). From the standpoint of protecting your assets, an ILIT removes insurance proceeds from your estate for federal estate tax purposes. And the trust protects the cash value of the policies from your creditors during your lifetime and it protects the policy proceeds from your creditors when you die.

Qualified personal residence trusts (QPRTs). A QPRT lets you transfer a primary or vacation residence to a trust while you reserve the right to live in the home for a term of years. The value of the interest you retain (that is, the right to live in the house for a term of years) is calculated using IRS tables. The value of the property transferred into trust, minus your term interest’s value, is a gift known as the “remainder interest.” This gift can be sheltered from gift tax by your $1 million gift tax exemption. If you survive the term of years, the trust is not included in your estate for federal estate tax purposes. (QPRTs provide creditor protection by insulating the residence from your creditors’ claims. In a creditor protection situation, the nondebtor spouse should create the QPRT and retain the term interest.)

Inter vivos qualified terminable interest property (QTIP) trusts. You create this trust during your lifetime for your spouse. It qualifies for the gift tax marital deduction. The federal estate tax benefit to this technique is that when your spouse dies, the QTIP trust is included in his or her estate for federal estate tax purposes. If your spouse lacks sufficient assets in his or her own name to use his or her federal estate tax exemption, the QTIP assets will achieve this. There is much more to say on QTIP trusts than space allows here - to learn more please use the form at right to get started.

Charitable remainder trusts (CRTs). A CRT usually provides for distribution of a percentage of the trust principal, at least annually, to a person, usually the grantor, for his or her lifetime. The CRT can provide that when the grantor dies, the grantor’s spouse shall become the CRT annuitant for his or her lifetime. When this period ends, the charity receives the remaining CRT assets (the “remainder interest”). Creating a CRT provides several income tax benefits. For example, the grantor can deduct the remainder interest’s value (the interest passing to the charity) as determined at the CRT’s inception by consulting IRS tables. For more on the advantages of a CRT, please use the form at right to get started.

Grantor retained annuity trusts (GRATs). A GRAT is a gift of a remainder interest in an irrevocable trust, under which the grantor has retained an annuity interest for a term of years. For example, if $500,000 is transferred to a GRAT and the grantor has retained a 6% annuity, $30,000 per year will be distributed to the grantor. The remainder interest in the GRAT can be a trust for the grantor’s spouse, with trusts being created for children when both spouses die. The value of the gift to a GRAT for gift tax purposes is the value of the property transferred to it, less the value of the grantor’s retained annuity interest. The value of the annuity is calculated according to IRS tables. To learn more about how a GRAT might help you, please use the form at right to get started.

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These are just a few of the ways proper estate planning can also safeguard your assets from creditors. Call us at (650) 325-8276 to let us know your needs.

Copyright © Law Office of Janet L. Brewer. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement. Some artwork provided under license agreement.

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Law Office of Janet L. Brewer

(650) 325-8276

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Law Office of Janet Brewer

2501 Park Boulevard, Suite 100
Palo Alto, CA 94306

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The Law Office of Janet L. Brewer provides comprehensive planning in the areas of Estate Planning, Wills and Trusts, Powers of Attorney, International Estate Planning, Estate Planning for Non-Residents, Probate & Trust Administration, Charitable Planning, Special Needs Planning & Trusts, Estate Tax Planning, Business Succession Planning and Asset Protection for Business Owners and Professionals. Janet has offices in Palo Alto, CA and serves the entire surrounding area, including Palo Alto, Los Altos Hills, Los Altos, Portola Valley, Woodside, Atherton, Menlo Park, East Palo Alto, Mountain View, Sunnyvale and Silicon Valley.

Copyright © IMS. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement. Some artwork provided under license agreement.

Janet L. Brewer is Certified as a Specialist in Estate Planning and Probate Law by the California State Bar Board of Legal Specialization. Information on this website, including any testimonial or endorsement, does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter.