Asset protection is very important for many people. Anyone can be the target of a lawsuit, and we do live in a litigious society. However, people who are involved in certain fields are inherently more vulnerable than others. These would include physicians who are subject to malpractice suits, and landlords who can be sued by injured tenants.
You want to protect assets for your own sake, but asset protection can also be important when you are planning your estate.
Revocable Living Trust
People sometimes have misconceptions about trusts. They are under the impression that you are surrendering all control of assets that you convey into any type of trust.
This is not the case when it comes to revocable living trusts. With this type of trust you retain total control of the assets. You can act as the trustee and the beneficiary while you are living, so you can manage the resources, and you can take monetary distributions.
Because the trust is revocable, you could rescind or revoke the trust at any time. The assets that had been conveyed into the vehicle would once again become your personal property.
This level of control is positive on the one hand, but assets that have been placed into a revocable living trust are not protected from creditors and claimants. You have direct personal control of the assets, so they are subject to attachment.
Why are revocable living trusts useful if they do not provide asset protection? Revocable living trusts provide a number of other benefits. One of them is the ability to prepare for possible latter life incapacity.
Many seniors become unable to handle their own affairs at some point in time. When you establish a revocable living trust, you name a successor trustee to administer the trust after you are gone. You also name successor beneficiaries who can receive monetary distributions from the trust after your passing.
To account for incapacity, you could empower the successor trustee to handle the estate administration tasks if you ever become unable to make sound decisions on your own.
There is no asset protection while you are alive, but things are different after you pass away. You can include a spendthrift provision when you establish a revocable living trust. After you die, the trust would become irrevocable. The assets that are in the trust would be protected from legal judgments against the beneficiaries.
You can take the protective measures a step further. The successor trustee could be instructed to distribute assets to the beneficiaries incrementally over time. If you do not want to allow for large lump sum distributions all at once, you have options.
This is a benefit that many people find be quite appealing, because you would not have this level of control if you were to use a will to direct transfers of your personally held property.
Trusts for Asset Protection
There are trusts that can be used for asset protection purposes while you are alive. These would be irrevocable trusts. You cannot simply walk away with the assets at any time when you create an irrevocable trust. When you create this type of trust, you are surrendering incidents of ownership. As a result, irrevocable trusts can be used for asset protection purposes
It should be noted that you cannot create the trust as a reaction to a pending legal action. This would be looked upon as a fraudulent conveyance.
Aside from trusts, there are other asset protection structures. Limited liability companies and family limited partnerships are often used by people who want to protect their assets.
Our Firm Can Help
We have provided some basic information about living trusts and asset protection in this blog post. As you can see, there is a lot of information to digest if you want to be fully informed when you are engaged in your estate planning efforts.
This is one of the reasons why personalized attention is so very important. If you develop a relationship with an estate planning attorney, you can get comfortable as you discuss everything in detail. Since there is no one-size-fits-all estate plan, your attorney will gain an understanding of your financial situation and your family dynamic. Your objectives will be identified, and your options will be explained to you.
In the end, you can walk away with a custom crafted estate plan that is perfect for you and your family.
If you are ready to get started, give us a call at (908) 222-8803 or send us a message through our contact page to schedule a consultation.