For most people, the primary goal of an estate plan is to ensure that their assets are passed down to help provide for loved ones upon their death. For those assets to be available to be passed down, however, they must also be protected over the course of your lifetime from a wide variety of threats. In fact, asset protection tools and strategies should be a routine part of any well thought out estate plan. The asset protection lawyers at Hedeker Law, Ltd. explain how you can use an irrevocable living trust to protect the assets that make up your estate.
Threats to Your Assets
Throughout the course of your life, there will be a kind of potential threats to your assets. Some threats are obvious while others are not. Creditors, for example, always pose a threat to your hard-earned assets as does the division of property in a divorce. Less obvious threats include things such as the need to “spend-down” assets in order to qualify for Medicaid as a senior or the possibility that a son or daughter-in-law would end up with fruits of your labors in a divorce. Whatever the threat might be, the key to neutralizing that threat is to plan for it by including asset protection strategies and tools in your estate plan, such as an irrevocable living trust.
What Is a Trust?
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, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. 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 your Will can always be modified up to the point of your death, a testamentary trust is always revocable.
How an Irrevocable Living Trust Can Protect Assets
A trust can be an effective asset protection tool if the right type of trust is created. Neither a testamentary trust nor a revocable living trust will work as an asset protection tool because assets held in either trust remain accessible to the Settlor and, therefore, part of the Settlor’s estate in the eyes of the law. Consequently, the law considers those assets to be fair game for creditors or spouses. In addition, those assets are counted as part of your “countable resources” when considering your eligibility for Medicaid as a senior if you ever need help covering the high cost of long-term care. On the other hand, 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.
Contact Asset Protection Lawyers
Please join us for a FREE upcoming seminar. If you have questions or concerns regarding how to use an irrevocable living trust as an asset protection tool, or about incorporating asset protection strategies into your estate plan in general, contact the experienced asset protection lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.