If you're familiar with trusts, you may be thinking, "Wait -- aren't trusts supposed to benefit someone other than myself?" Not necessarily. The person who establishes a trust is a grantor. The trust is set up to distribute assets to its beneficiaries. A third party -- or trustee -- manages the distribution of those assets based on the grantor's wishes. However, sometimes the beneficiary for your trust can be yourself. With a privacy trust, you assign your assets, including real estate, personal property, and bank and brokerage accounts, to yourself. You are both the grantor and the beneficiary.
How else is a privacy trust different from other trusts? With a privacy trust, you are usually selecting a trust company to act as your trustee. Unlike most trusts, your assets are not truly being "managed." Instead, your trust company manages documents associated with your assets. In other words, the trust company holds the legal title to your assets. You direct the trust company as to how those documents should be handled.
When choosing a trustee, consult with an estate-planning specialist. They can help make sure that the trust company you select is licensed and regulated. Because privacy trusts are revocable, you can terminate your relationship with the trust company at any time.
If you own a business, there's always the risk that it may be subject to a lawsuit. When someone decides to sue your business, that person may also want to gain access to your personal equity as well. With a privacy trust, your real estate and personal assets remain shielded from the public record.
Of course, a business may be subject to a lawsuit even if your personal assets are private. To make sure that your business remains anonymous and considered a separate entity from your personal assets, you can supplement your privacy trust by starting either a Family Limited Partnership or a Limited Liability Company. A Family Limited Partnership is a limited partnership in which the partners are closely related. A Limited Liability Company combines the liability protection of a corporation with the tax benefits of a partnership [source: Palermo]. In either situation, the licenses and permits associated with the business are identified by the name of the FLP or LLC. If you have liquid assets in a bank or brokerage account, you could start another LLC to shield that account as well.
Remember to find a qualified estate-planning specialist. Your insurance agent, banking institution or broker should be able to recommend one. Have that person recommend a trust company that has experience with privacy trusts and is regulated by the banking industry. Making the move toward financial privacy will help you sleep better at night.
For more information about privacy trusts and other ways to guarantee financial privacy, see the links on the next page.