How Limited Term Trusts Work

Not just for the wealthy anymore: Trust funds can protect your assets from risk.
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Do you know a so-called trust fund baby? Perhaps this person inherited money but doesn't know how to manage it effectively. Pop culture is rife with wealthy individuals and celebutantes who shape our assumptions about trust funds. But these assumptions can cloud our understanding of this valuable financial tool.

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Trust funds aren't just for the very wealthy. On the contrary, a trust is a flexible financial option that can protect any individual's or family's assets. A limited-term trust is one type of trust that's created for a specific number of years.

Let's remove the mystique of the trust fund. A trust is simply a legal relationship, drawn up by a lawyer to serve a specific purpose. The grantor is the creator of the trust. In a limited term trust, the grantor's goal is to protect his or her assets: property, estates, savings, or investments. By placing the assets in a trust, the grantor gives a third party or trustee temporary ownership of the assets. The trustee -- an individual person, bank, or professional trust company -- manages the assets in the trust. The grantor also names beneficiaries of the trust. The beneficiaries will receive disbursements from the trust at set intervals, which the grantor decides.

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Think about the trustees of a college or university. They're chosen by alumni and administrators (the grantors) to serve the college and its students (the beneficiaries). The college's trustees are charged with making decisions for the development and the betterment of the institution. A financial trust is very similar. Trustees handle the day-to-day management of the assets in the trust, protecting the grantor's assets during the term of the trust, whether that's for 25 years or for life.

Discover how limited-term trusts can protect individuals in high-risk jobs.

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Benefits of Limited-Term Trusts

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:

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  • 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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Lots More Information

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More Great Links

  • The Asset Protection Law Center. "Interview with Robert Mintz." 1996-2003. (May 16, 2008) http://www.rjmintz.com/appch7.html
  • The Asset Protection Law Center. "Limited Term Trust." 1996-2003. (May 16, 2008) http://www.rjmintz.com/limited-term-trust.html
  • The Asset Protection Law Center. "Overview." 1996-2003. (May 16, 2008) http://www.rjmintz.com/appch7.html
  • Britannica Online Encyclopedia. "fidei commissum." 1994-2008. (May 18, 2008) http://www.britannica.com/EBchecked/topic/206097/fidei-commissum
  • "Trusts." Encyclopedia of Everyday Law. Ed. Shirelle Phelps. Gale Group, Inc., 2003. eNotes.com. 2006. (18 May, 2008) http://www.enotes.com/everyday-law-encyclopedia/ trusts
  • Northern Trust. "Personal Trusts: How They Work and What They Do." 2004. (May 16, 2008) http://www-ac.northerntrust.com/content//media/attachment/data/topicsin/document/0489Q1191Top_PersTr.pdf
  • Northern Trust. "The Role of the Trustee: Responsibilities and Liabilities." 2007. (May 16, 2008) http://www-ac.northerntrust.com/content//media/attachment/data/topicsin/0702/document/Q1192_The_Role_of_the_Trustee_2007.pdf
  • Stock, Tracy. EnerMatix Consulting, Inc. "Trust Agreements and Trust Declarations." 2007-08. (May 18, 2008) http://www.enermatix.ca/trust-agreements-and-trust-declarations/
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