Owning a yacht provides hours of fun and joy out on the open waters, but your boat is more than just entertainment. It’s a significant investment, and one you likely want to protect. However, the right kind of insurance isn’t enough to safeguard your yacht, especially if you want your heirs to inherit it after you pass. Revocable trusts offer numerous protections for you and your beneficiaries, so should your yacht be in a trust?
Yes, placing your yacht in a trust can be a great way to ensure that the boat transfers to your heirs upon your death. At AmeriEstate, we find that many of our clients with yachts haven’t considered a trust as a form of asset protection and are surprised to hear it’s an option and question if they’ll still be able to use it whenever they wish. Let’s explore this topic a little more to help you understand whether a trust is a good option for you.
Should Your Yacht Be in a Trust if You Still Use It?
Your investment in a yacht is likely similar to that of the home you live in, and just like your house, you may use your vessel regularly. In both cases, you can have control over what happens to the asset after you pass while still providing you with the freedom to do as you wish with the asset during your lifetime. One of the greatest benefits of a living trust is that you get both. If you still use your yacht, placing it in a revocable trust provides you with the highest level of protection and control during your lifetime and after you pass.
What Is a Living Trust?
A living trust, also called a revocable trust, is a legal entity. Creating a trust separates assets within the trust from other aspects of your estate. Trusts are important elements of an estate plan, as they help you establish protections and ownership transfer upon death. The parties involved in the revocable trust are:
- Grantor: The person who establishes the trust and decides which assets to place in it is the grantor. If you create a trust for your yacht, you are the grantor.
- Trustee: The trustee is the individual responsible for managing the trust. You can be both the grantor and the trustee of a living trust. Alternatively, you can designate another person or entity as your trustee.
- Successor trustee: The individual or entity responsible for managing your trust and dispersing assets to beneficiaries after you pass is the successor trustee. Establishing a successor trustee and alternative successor trustees is a critical element of trust planning.
- Beneficiaries: Those who inherit the assets within a revocable trust are the beneficiaries. When determining whether you should put your yacht in a trust, you also need to decide who you want to pass your vessel on to when you die.
The trust document establishes each of these parties and also details the trust terms. An AmeriEstate attorney can help you create the trust, ensuring that your document adheres to your wishes and complies with federal and state laws.
Why Should Your Yacht Be in a Trust?
Placing your yacht in a living trust offers several benefits for you and your heirs. Living trusts give you decision-making power. You have control over all assets in a living trust during your lifetime (as opposed to an irrevocable trust, which gives you no control over the assets held in the trust). You can use your yacht whenever and how you want. If you decide to sell your vessel, you are free to remove it from the trust and sell it. You can also change your mind about who receives the boat upon your passing and when. In essence, a living trust gives you the most control, while also offering the following protections:
- Avoid probate: A will does not protect your assets from the probate process. A living will does offer this type of protection. Probate is lengthy and costly, and the judge ultimately decides who receives which assets.
- Maintain privacy: The probate process is public, which means that anyone who wishes to know your family’s affairs has access to them. Additionally, anyone can contest your will, adding to the process’s cost and duration.
- Avoid creditors: Assets in a living trust are not subject to your creditors during your lifetime. Typically, if you run into financial trouble, creditors can seize assets in your estate to cover your debts. If you place your yacht in a trust, creditors will not have access to it.
A revocable trust also ensures that the individual that you want to inherit your yacht after you pass gets it, thereby reducing family inheritance fights.
Revocable Trusts and Taxes
The trust is still responsible for filing taxes if the trust earns more than $600 during the tax year. If you place your yacht in a trust and manage that trust, you are both grantor and trustee. As such, you must include the income from the trust when filing your taxes. Additionally, you will pay any taxes due. However, you will only pay taxes on income earned, not on the yacht’s base value.
Revocable Marital Trusts
A revocable marital trust works a little differently than an individual living trust. If you are married, you may consider placing your yacht in a marital trust, especially if you and your spouse are joint owners. While you and your spouse are living, you will both have decision-making power for the trust and report the trust’s income on your joint tax form. You can also serve as joint trustees.
However, when you or your spouse passes, the process changes. The trust is split in two, with one portion remaining as a revocable trust for the surviving spouse and the other converting to an irrevocable trust. If you are considering placing your yacht in a revocable marital trust, you must consider whether the vessel will remain with the surviving spouse’s revocable trust or go to the irrevocable trust and transfer to your heirs.
Should Your Yacht Be in a Trust if Your Limited Liability Corporation Owns It?
Another form of asset protection many yacht owners take advantage of is LLC ownership. An LLC ownership offers personal liability and tax protection. When your LLC owns your yacht, the asset is removed from your estate, and the corporation incurs legal responsibilities and liabilities. However, an LLC does not allow you to secure a transfer of ownership upon death. It will not prevent family squabbles over who inherits the vessel. Furthermore, without the protection a living trust offers, your boat will need to go through the probate process.
Though complex, placing your yacht in a trust if your LLC owns it is possible. You would essentially make your trust a member of your LLC. In doing so, you obtain the benefits of the trust and the LLC. However, you will need to understand the insurance, financial, and legal ramifications of the decision, as these can vary from state to state.
Can AmeriEstate Help You Put Your Yacht in a Trust?
AmeriEstate attorneys specialize in all aspects of estate planning. Our lawyers are well-versed in state and federal regulations for living trusts. They can ensure your trust complies, while also fulfilling your wishes for transferring your yacht to your beneficiaries after you pass.
We make the process easy, working with you wherever you are and sending an agent who will review your documents with you and serve as the notary during the signing. Additionally, our fees are half the amount private attorneys usually charge. If you’re ready to explore whether your yacht should be in a trust, get in touch with one of our attorneys. They’ll answer any other questions and help you create your living trust.
Sources:
https://www.irs.gov/e-file-providers/estates-and-trusts
https://smartasset.com/estate-planning/does-a-living-trust-need-to-file-a-tax-return