Douglas A. Turner, P.C.

According to Wikipedia, Bill Gates is now worth about 56 Billion dollars.

Query: If Bill Gates had placed his Microsoft stock in an asset protection trust when the company began, how much would he have saved in estate taxes?

Answer: Roughly 20 billion dollars.

What is an Asset Protection Trust?

The term asset protection trust is a broad term used to describe many types of tax planning and creditor protection trusts. One of the most overlooked estate planning techniques is transferring start-up company stock or ownership interests into an irrevocable trust while the stock/interest has little value.

What is an Irrevocable Trust?

An irrevocable trust is a distinct, taxpaying entity separate and apart from the trust beneficiaries. It has its own tax identification number. It files its own tax returns and issues K-1s to trust beneficiaries. Properly structured, the trust beneficiary can be the trustee without the trust assets being included in the beneficiary’s taxable estate. If creditor protection is a priority, the beneficiary should not be the trustee.

Using an Asset Protection Trust to Insulate a Billion Dollar Asset

With start up companies, this technique is very effective in removing business interests from the entrepreneur’s taxable estate while the value of that interest is small. It is also fairly effective in insulating those assets from the entrepreneur’s personal creditors including a spouse in the event of a divorce. However, there are some drawbacks to consider. Holding property in trust is not quite the same as holding property in the individual’s own name. A CPA is a must to deal with income tax issues that can arise with a trust. Perhaps the biggest issue is cost. It is not that the cost is enormous, but at a time when an individual is starting up a small company, spending several thousand dollars on lawyers and CPAs is not a priority.

A Little Bit of Good Estate Planning Can Result in Billion Dollar Payoffs

In reality, Bill Gates probably could not avoid creditors and estate taxes all 56 billion by using an asset protection trust, and no doubt Mr. Gates has embarked on other estate planning techniques. However, it makes a good example about how a little bit of up front planning can have big payoffs down the road.