What You Should Know
High Net Worth Families can benefit from an Alter Ego Trust, saving time and costs, as well as benefit from enhanced privacy. Before setting this up, it is important to consider whether the advantages outweigh the drawbacks.
Consider the Drawbacks
- Legal Costs: Establishing an Alter Ego Trust requires a legal trust document, known as a trust deed, which typically identifies the trustees, outlines how the trust will be managed, and dictates how assets will be distributed to beneficiaries upon the passing of the settlor. The initial setup can cost several thousand dollars in legal fees.
- Tax Filing and Administrative Fees: Each year, the trust must file its own income tax return and may require ongoing support from legal, tax, and trustee professionals. As a result, the trust can incur annual accounting, tax preparation, and administrative expenses.
- Taxation: Upon the passing of the settlor, the trust is generally treated as if the assets are sold, often resulting in taxes paid at the highest marginal tax rate.
- Inflexibility: Once assets are transferred to the trust, their management and distribution are governed by the terms of the trust deed. As a result, making amendments can be more difficult than if the assets are held personally.
To ensure this strategy is right for you, be sure to speak with your lawyer