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How Limited Term Trusts Work


Benefits of Limited-Term Trusts
High-risk profession? Limited-terms trusts can help protect your assets from lawsuits.
High-risk profession? Limited-terms trusts can help protect your assets from lawsuits.
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People develop trusts are developed for a variety of reasons. Perhaps you've experienced great financial success and want to preserve and protect this wealth for your family in the future. A limited-term trust holds that wealth for a specified number of years. It protects your assets, and your trustee makes disbursements to your beneficiaries based on the parameters you set forth. When the term of the trust is complete, the assets are returned to you in full -- minus what has been paid out to your beneficiaries.

A limited-term trust can provide:

  • Protection from lawsuits for individuals in high-risk professions
  • General asset protection for a set period of time

Individuals working in high-risk professions are often more vulnerable to lawsuits. For example, physicians are particularly vulnerable to malpractice lawsuits. If a physician is sued for malpractice, his or her insurance may not cover the total amount sought by the plaintiff. As a result, a doctor's personal wealth -- home, investments, savings for family members or even medical equipment -- is at risk of being liquidated to settle the lawsuit.

Robert Mintz of The Asset Protection Law Center notes that if a doctor places her assets in a limited-term trust before the event that led to a lawsuit, the future of her family is secured. Because the trust transfers the doctor's assets to a trustee for a limited amount of time, the assets are out of reach for the plaintiff's settlement, but still available to the trust's beneficiaries -- the doctor's children. When the term of the trust is complete, the doctor again has full control of those assets. For example, the doctor might set the trust to expire just as she reaches her planned retirement age, when her risk of a lawsuit is lower. Or she may time it to coincide with her youngest child's completion of college, after which her financial obligations will drop and she'll be more comfortable with her risk exposure.

Whether a limited-term trust is right for you depends on your financial obligations, your plans, your assets, your family and your level of risk. You may want to discuss forming a trust with a lawyer or a financial planner. If you like keeping what you have, it's certainly an option worth considering.

Explore the great links on the next page for more information on limited-term trusts and other related topics.

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