A well rounded and comprehensive estate plan is likely to have at least one trust in the plan. One reason trusts are so commonly found within estate plans is the numerous and varied goals a trust can help achieve. You may, for example, have created a trust to help you with your overall goal of asset protection. Now, several years later, you want to change the Trustee of that trust. As a Lincolnshire asset protection trusts attorney at Hedeker Law, Ltd. explains, you cannot change the Trustee of your asset protection trust which is why appointing the right Trustee when you create the trust is so important.
Trust Basics
One reason trusts are so popular is that trusts are extremely flexible, meaning a trust can help achieve a wide range of estate planning goals. Although trusts can be highly specialized to accomplish very specific goals, all trusts are fundamentally the same. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
Why an Irrevocable Living Trust Is Best for Asset Protection
When asset protection is your primary purpose, the type of trust you create is crucial to fulfilling that purpose. Only an irrevocable living trust will protect assets from third-party threats because assets transferred into an irrevocable living trust become the property of the trust once the transfer is complete. As such, the Settlor no longer has a legal interest in the assets held in the trust which means that the assets are not accessible by creditors of the Settlor, a spouse in a divorce, or others who might threaten the assets. That does not mean, however, that you cannot continue to benefit from the trust. While there are a number of specialized trusts that are used as asset protection tools, the important common thread is that they are all irrevocable living trusts.
Changing the Trustee of Your Asset Protection Trust
Because only an irrevocable living trust will protect assets from threats such as creditors, divorce, or bankruptcy, it is crucial that you appoint the right Trustee initially because you cannot change your mind down the road. As the Settlor of an irrevocable living trust, you cannot modify, change, terminate, or revoke the trust after it takes effect. In essence, once the trust s active it’s “hands off.” It may be possible for the beneficiaries of the trust to change the Trustee of you gave them that power in the trust terms and it is always possible for a judge to change the Trustee as a result of petitioning the court. You, however, are stuck with your initial Trustee. While it is always wise to consult with an experienced trust attorney when establishing a trust, it is particularly important if you are creating an irrevocable living trust because you won’t be able to go back and change or modify anything that you didn’t get right during the creation of the trust.
Contact a Lincolnshire Asset Protection Trusts Attorney
For more information, please join us for a FREE estate planning seminar. If you have additional questions or concerns regarding asset protection trusts or appointing the right Trustee for your trust, contact the experienced Lincolnshire asset protection trusts attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.
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