How Living Trusts Can Be Used For Asset Protection
Everyone has an estate. While your estate may not be as grand as what most people envision when they hear the word estate, make no mistake, you have one.
As the name implies, estate planning involves planning for what happens to your estate when you die or become incapacitated.
When it comes to implementing a plan for your estate, the most preferred estate planning vehicles are living trusts. This is primarily because they avoid probate.
Probate is a process that has been set up by the government for the orderly distribution of your assets upon your death, and something that you want to avoid whenever possible.
Probate can be time-consuming, expensive and, as a matter of public record, lacks the privacy that most people want for their family’s affairs.
Trusts & Asset Protection
There is no one-size-fits-all estate plan because different people have different estate planning objectives. For many, asset protection is their main estate planning goal.
Asset protection strategies are used to keep assets out of the reach of creditors and litigants. Holding assets in a trust is one of the many different types of asset protection strategies commonly employed.
Many people assume that assets that have been conveyed into any type of trust will be protected from their creditors and lawsuits. But, this is a false assumption.
There are different types of trusts and only certain types will protect assets from lawsuits and judgments against the trustor (the person who created the trust).
Revocable Living Trust vs. Irrevocable Living Trusts
Living Trusts can be separated into two basic categories:
- Revocable; and
- Irrevocable
Revocable living trusts are the most common types of trust utilized for estate planning. Revocable living trusts are those that can be amended or revoked at any time during your lifetime. Once you put assets into a revocable living trust, you retain full control over those assets.
Irrevocable living trusts are those that, once created, cannot be amended or revoked. Once you place assets into an irrevocable living trust, your control over those assets is severely limited.
Generally speaking, assets held in an irrevocable living trust are protected from lawsuits and judgments. Assets that have been conveyed into a revocable trust are generally not protected.
Revocable Living Trusts & Asset Protection
When you set up a revocable living trust, you remain in full control of the assets you place into the trust. Because of this, the law allows creditors to access these assets to satisfy debts.
Therefore, a revocable living trust does not typically provide asset protection for the person who created the trust. However, depending on how a revocable living trust is written, it can provide asset protection for the trust beneficiaries.
In other words, if you leave money in your trust for a beneficiary, a revocable living trust will protect those assets from being lost to creditors, bankruptcy, and lawsuits. This same strategy can also be used to keep assets from being lost to a divorce.
Safeguards can even be written into your revocable living trust to protect your beneficiaries from themselves. This is especially useful if you have a beneficiary that tends to have bad spending habits, gamble a lot, or abuse drugs and alcohol.
For greater asset protection, talk to an estate planning attorney about an irrevocable trust, an asset protection trust, a limited liability company, or an insurance policy that can provide you with more asset protection than a revocable living trust.
Call us today at (703) 553-2577 or use the contact form on our website to arrange a consultation with a knowledgeable estate planning attorney.
The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.