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Robert J. Mintz
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Personal Residence Trust

A Personal Residence Trust is a good strategy  to provide asset protection for the family home.   Generally, our goal with a Personal Residence Trust  is to protect the equity in the home, above the homestead amount, while preserving the tax benefits and the continued right to use and enjoy the house. That’s what most people want to accomplish.

To understand the key issues involved in protecting the family residence, lets review the tax issues which may be involved. Some trusts are treated by the tax law as if they do not exist. This type of trust is known as a “Grantor Trust,” and if certain language is used in the trust document, the IRS will treat you as the owner of the property, not the trust. That’s good, and it is what we want for our purposes. We want a legal trust that is respected for protection purposes but that is ignored for taxes. That way we are assured that we’ll retain all the tax benefits. So, our first requirement is that the trust we use is treated as a “Grantor Trust.”

Once we have solved the tax problems we can consider the asset protection issues. To achieve worthwhile protection for the residence, it is important that your legal rights concerning the house are limited in some manner. If you maintain the full spectrum of ownership rights, it is likely that a judge would order you to turn over the property to a plaintiff with a judgment against you. In other words, to the extent that you have unrestricted power to do anything you want with your home, it can be seized in a collection action.

The key to protecting the home is to limit your rights in some manner so that there is nothing legally available, which can be reached. If your ownership of your home changes from full and complete to something less, your interest may have no value to a prospective creditor.

How should we limit your rights in an acceptable manner? We say acceptable because it is certainly easy to fully protect your home if you want to give it away to your children and not live there anymore. That’s perfect asset protection, but in most cases, it would not be a satisfactory solution. Maybe we can accomplish what we want using less drastic measures.

Protecting Your Home From Lawsuit Risk

For most people, the family home represents the largest source of wealth and personal savings. In many parts of the country, dramatic increases in housing prices has made real estate the new investment of choice over the stock market and other traditional vehicles. Clients are now coming to us with substantial equity in their residence and many now own one or several vacation homes and rental houses. Read full article

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