1. What are the main benefits of an Upstream Trust?
Benefits of any APT:
- Creditor protection. Assets properly placed in the trust are shielded from future lawsuits, judgments, and creditors — yours and your family's.
- You keep practical control. You direct all investments, you can veto distributions to others, and you can replace the trustee at any time.
- Flexible family support. The trustee can make payments to you, your spouse, your children, or your parents when needed.
- Divorce and remarriage protection for your kids. Assets stay in protected trusts for your children rather than being exposed to their future divorces or creditors.
- Lasts for generations. The trust can continue indefinitely, protecting assets for children and grandchildren.
- No gift tax to set up. Funding the trust doesn't use up your lifetime gift and estate tax exemption (see Question 23).
The Upstream Trust-specific benefit — the basis step-up:
Normally, if you own stock (or any asset) that has grown a lot in value, you owe capital gains tax on all that growth when you sell. The Upstream Trust adds a feature so that when one of your parents passes away, the tax law "resets" the cost basis of trust assets to their current market value — wiping out the built-in capital gains tax. Example: you contribute stock worth $1,000,000 that you bought for $1,000. Sell it yourself and you'd owe roughly $300,000 in combined taxes. Inside an Upstream Trust, after a parent's death the stock's basis resets to $1,000,000 — it can then be sold with zero capital gains tax. This uses your parent's unused estate tax exemption — a valuable tax attribute that would otherwise simply expire at their death, benefiting no one.
2. Who are the different parties in an Upstream Trust?
The first four roles exist in any APT. The parents' role is Upstream Trust-specific.
- Grantor (you). The person who creates the trust and contributes assets to it. You also serve as Investment Director.
- Trustee. An independent professional (often an attorney or trust company in the trust's home state) who administers the trust and is the only person who can approve distributions. You can replace the trustee at any time, for any reason.
- Investment Director (you). The person with exclusive control over buying, selling, and managing trust investments. The trustee cannot touch investments without your direction.
- Trust Protector. An independent person with special limited powers. In any APT, the protector is a backstop who can appoint and remove other fiduciaries. In an Upstream Trust, the protector has one additional key job: granting your parents the tax power (GPOA) that produces the basis step-up, and adjusting it if circumstances change.
- Beneficiaries. The people the trust can benefit: you, your spouse, and your children (and their descendants). In an Upstream Trust, your parents are also included as beneficiaries — partly so the trust can help them if ever needed, and partly because being a beneficiary is what makes them eligible to hold the tax power. No beneficiary can demand anything — all payments are at the trustee's discretion.
3. Who is an Upstream Trust advantageous for? What criteria should someone meet?
Criteria for any APT:
- You want creditor protection and are funding while financially healthy, with no claims pending or threatened.
- You can afford to part with demand rights over the contributed assets — this should be wealth you're protecting, not money you'll need on demand.
- You're comfortable paying the trust's income taxes from personal funds each year.
Additional criteria that make the Upstream Trust feature worthwhile:
- You hold highly appreciated assets (low-basis stock, a business, crypto, real estate) that you may want to sell during your lifetime.
- At least one living parent (or grandparent) has unused estate tax exemption — their total assets are comfortably below $15 million federally, and ideally they live in a state with no state estate tax (or have room under their state's exemption).
- Your parents are expected to live at least 12 months after the trust is funded and the powers are granted (a tax rule can deny the step-up for deaths within one year).
4. What assets can go into an Upstream Trust? What assets work best?
Most assets qualify: stocks, funds, business interests, LLC interests, real estate (usually held through an entity), crypto, and cash. The trust works best when funded with highly appreciated assets you may want to sell during your lifetime — concentrated low-basis stock is the classic example, since those assets benefit most from the basis step-up. Poor fits: retirement accounts (IRAs and 401(k)s generally can't be transferred into a trust), assets you'll need back on demand, and assets currently pledged as collateral or entangled in disputes.
5. Why is the trust set up in New Hampshire (or another trust-friendly state) instead of my home state?
A minority of states have laws that specifically protect trusts you create for your own benefit; most states (including Washington and California) do not. The trust is established under the laws of a protective state, with a trustee located there, so those laws apply. Living elsewhere doesn't prevent this, but it does mean an out-of-state creditor may argue your home state's law should govern — one of the risks discussed in Question 26, and a key reason proper setup, real ties to the trust state, and early funding matter.