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Are you worried about what happens to your hard-earned assets after you’re gone? Did you know that 70 % of inherited wealth disappears by the second generation and 90 % is gone by the third? That’s right. Most families lose their legacy within just a few decades. But what if I told you there’s a way to protect your assets from creditors, lawsuits, divorces, and even nursing homes? Not just for you, but for generations to come.

Today I’m going to reveal two powerful trust strategies that can shield your family’s wealth for decades. Separate shared trust and preservation trust. I’ve helped hundreds of Ohio families protect millions in assets using these exact strategies. And by the end of this video, you’ll understand exactly how they work and which one might be right for your situation. Before we dive in though,

Let me clarify something important. Both separate shared trusts and preservation trusts are irrevocable trusts. Sometimes they’re called sub trusts. This means once they’re established, they can’t be easily changed or revoked. But that’s exactly their superpower. This irrevocable nature is precisely what provides protection from creditors, lawsuits, Medicaid,

bankruptcy, and divorce. Let’s start with separate share sub-trusts. Imagine you have three children and you want to leave each of them an inheritance. But you’re concerned about what might happen to that money if one of them gets divorced, gets in a car accident, and faces a lawsuit, or needs nursing home care later in life. A separate share sub-trust creates individual accounts for each beneficiary

while providing crucial protection. Instead of giving your assets outright or directly to your children, where they’d be vulnerable to life’s financial disasters, you place them in separate protected accounts or sub-trusts. Each beneficiary gets their own individual trust managed independently based on their unique needs and circumstances. This could be for education, medical expenses,

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or just general financial support. Here’s how it works. The separate share sub-trust is established under a trust agreement designed by you, the trust maker. The terms are typically basic in nature. There’s no specific successor child trustee named in the document if the beneficiary becomes incapacitated or dies. Also, the beneficiary distribution standards and any powers of appointment are limited

to those included in the original trust agreement. What makes this structure powerful is the two-trustee system. Your beneficiary serves as the management trustee of this sub-trust, deciding where to invest the funds. They work alongside a distribution trustee, oftentimes one they appoint, who acts as a firewall between the beneficiary and any creditors. Again, typically,

you’re going to allow your beneficiary to appoint this distribution trustee. The distribution trustee has no significant liability exposure and doesn’t need to know the financial specifics like account details or amounts. One important restriction, if not specifically named by the original trustmaker, distribution trustees must be non-related, non-subordinate parties. In other words,

They cannot be grandparents, parents, siblings, children, or grandchildren. However, they can be a best friend, in-law, cousin, aunt, or uncle. A beneficiary can also appoint an attorney, CPA, or financial advisor as distribution trustee, though professionals typically charge an annual fee. For tax purposes, separate shared trusts are non-grantor trusts.

This means you’ll need to obtain an EIN and file an IRS form 1041 each year to report trust income once the sub-trust is created. If distributions were made, the beneficiary would receive a Schedule K1 to add to their personal return and pay any tax owed at their tax rate. If no distributions were made, the separate shared trust will pay taxes

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at a compressed tax rate. Now, let’s talk about preservation trusts and how they differ from separate share trusts. I oftentimes say, think of them as separate share trust 2.0 with more flexibility and control and greater tax benefits. A key advantage of preservation trusts

is that beneficiaries can actually decant their separate shared trust into a preservation trust. What does decant mean? Just like pouring wine from one bottle into another to leave behind the sediment, decanting a trust means transferring assets from one trust into a new trust to change the terms. This allows beneficiaries to maintain control while gaining added protection and flexibility.

Preservation trusts are established and administered under a trust agreement designed by the beneficiary, not the original grantor or trustmaker. This means the terms can be tailored to the beneficiary’s current situation. Successor trustees can be named by the beneficiary in the trust agreement. For tax purposes, preservation trusts are grantor trusts as to the beneficiary.

This means beneficiaries can use their social security number, allowing trust income to be reported on the beneficiaries IRS form 1040, rather than filing a separate trust tax return as you do with a separate shared trust. This simplifies tax reporting and potentially reduces the overall tax burden. Let me give you a real world example of how these trusts work.

I recently helped a client named Sarah to set up her estate plan. Sarah had accumulated significant assets over her lifetime and had three adult children. She was concerned about her son Mark, who was going through a contentious divorce, and her daughter Jessica, who had recently started the business, with significant liability exposure. Instead of leaving her assets directly to her children, Sarah established

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separate share sub-trusts for each of them as a part of her trust. So when Sarah passed away, her assets flowed into these protected sub-trusts. Mark’s inheritance remained completely shielded from his divorce proceedings. His soon-to-be ex-spouse couldn’t touch a penny of it. Jessica’s inheritance was protected from any potential business creditors or lawsuits as well.

Later, Jessica decided she wanted more flexibility with her trust. She worked with an attorney to decant her separate share sub-trust into a preservation sub-trust. This allowed her to name her sister-in-law as a distribution trustee and customize the trust terms to better fit with her current needs while maintaining all the asset protection benefits. Now you might be wondering.

Which trust is right for my situation? Here’s a simple way to think about it. Choose a separate shared trust if you want to provide basic protection for your beneficiaries with standardized terms. This works well when you want to establish the same basic protections for multiple beneficiaries without a lot of customization. But consider a preservation trust, or simply allow your beneficiaries to decant.

to one later if you want maximum flexibility, customization, and tax efficiency. This is ideal when beneficiaries have complex situations or when you want to give them more control over their inheritance while maintaining protection. Remember, both trust types provide protection from creditors, lawsuits, Medicaid, bankruptcy, and divorce. The main difference is

lie in flexibility, control, and tax treatment. One question I often get is, can’t I just leave everything to my children and my will? Well, you certainly can, but here’s what happens. Those assets become completely vulnerable. If your child gets divorced, their spouse might get half. If they’re sued, creditors can take everything. If they need nursing home care, they’ll have to spend down those assets.

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before qualifying for Medicaid. By using protected sub-trusts, you’re not just giving your children an inheritance. You’re giving them protected wealth that can last for generations. Think of it as the difference between handing someone cash that can be easily lost or stolen versus giving them a secure vault that keeps their wealth safe no matter what happens. Another common question is about cost.

while setting up these trusts does require an initial investment. Consider this, the cost of establishing a trust is typically a tiny fraction of the assets you’re protecting. Would you spend $5,000 to protect $500,000 or more? Most people would say that’s an excellent investment. Let me share another quick example. I had clients, John and Mary, who had built a successful family business

worth several million dollars. They had two children and five grandchildren. They established a separate share sub-trust for each of their children with provisions that would continue to protect those assets for their grandchildren. Ten years later, their son experienced a business failure and filed for bankruptcy. Because his inheritance was in a protected sub-trust, those assets remained completely safe from creditors.

He was able to use distributions from the sub-trust to support his family during this difficult time, while maintaining the principle for future generations. This is the power of proper trust planning, protection that spans generations and weathers life’s financial storms. Separate shared trusts and preservation trusts both provide protection for multiple beneficiaries while maintaining control

over how assets are distributed. However, preservation trusts offer more flexibility, customization options, and better tax treatment. Separate share sub-trusts are non-grantor trusts requiring separate tax filings, while preservation trusts are beneficiary grantor trusts that can use the beneficiary Social Security number for tax reporting. The choice between these trusts

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depends on your specific situation, goals, and how much flexibility you want to give your beneficiaries. If you’re serious about protecting your legacy for generations to come, I strongly recommend working with an experienced estate planning attorney who specializes in these types of sub-trusts. Every family situation is unique, and your trust strategy should be tailored to your specific needs and goals. Well, if you found this information helpful,

Please hit the like button and subscribe to our channel for more estate planning insights. In our next video, we’ll be discussing how to use these trusts specifically for retirement accounts, a topic you won’t want to miss if you have significant IRA or 401k assets. Thank you for watching and remember, the time to repair the roof is when the sun is shining. Don’t wait until it’s too late to protect what you worked so hard to build.

Click the video on your screen now to learn about the three legal documents everyone needs to make sure their medical wishes are followed. Another critical piece of your comprehensive estate plan. Thanks for being with us today.