When you create your initial estate plan the focus will likely be on the distribution of your estate assets in the event of your unexpected death. As you mature, and your assets grow, you will likely want to add additional components to your estate plan to reflect the changes in your life and priorities. For example, if you now have a moderate to large estate, you need to start thinking about protecting your estate assets from a variety of potential threats. After all, if you fail to protect your estate assets during your lifetime there won’t be any left to pass down when you are gone. Because every estate is unique, it is always in your best interest to consult with your Illinois estate planning attorney before deciding to make any changes to your estate plan. It may be beneficial, however, to learn more about asset protection strategies and tools that are common incorporated into an estate plan. Many people, for example, use an irrevocable living trust as an asset protection tool.
Are your Assets at Risk?
Before discussing tools and strategies that are commonly used to protect your estate assets, it helps to gain a better understanding of how and why your assets might be at risk. The reality is that your assets may be threatened from a number of directions without your knowledge. For instance, have you considered the following potential threat to your assets?
- Divorce – no one plans to get divorced; however, it does make sense to plan for the impact a divorce might have on you and your assets just in case your marriage does end because failing to do so puts your assets at risk of being lost to your spouse in the divorce. The divorce of an adult child could also threaten assets you worked hard to acquire. Imagine your son-in-law ending up with an interest in your business that you gifted to your daughter because he was awarded it in a divorce.
- Business debts and liabilities – while there are step you can take to dramatically limit your personal liability when you own a business, you can never completely ensure that you won’t be held personally responsible for debts and liabilities of the business.
- Creditors – even if you are exceptionally responsible with your finances, a downturn in the economy or a medical emergency could lead to financial trouble. That, in turn, could result in creditors coming after our personal assets.
- Taxes – even a small mistake on your federal tax return could result in a large debt to the Internal Revenue Service (IRS). The IRS is a priority creditor, meaning it could come after just about any of your assets if you owe back taxes.
- Spendthrift beneficiaries – your assets can even be threatened after you pass them down to loved ones. If you have a son, daughter, or other beneficiary who is not good with money or who has an addiction your hard-earned assets could be gone in record time after being gifted.
- Long-term care costs – if you fail to plan ahead, the high cost of LTC could diminish the value of your estate in record time.
How Can an Irrevocable Living Trust Help Protect My Assets?
A living trust can be revocable or irrevocable. As the names imply, a revocable trust is one that can be modified or revoked by the Settlor (the creator of the trust) while an irrevocable trust cannot be modified or revoked by the Settlor. If your primary goal in establishing the trust is asset protection, you need an irrevocable living trust. An irrevocable living trust works as an asset protection tool because once assets are transferred into the trust they become trust property. Consequently, they are out of the reach of creditors, divorcing spouses, and even the IRS because you no longer have any legal ownership interest in the assets. An irrevocable living trust can even help with spendthrift beneficiaries by using the trust terms to dictate when assets can be accessed by a beneficiary and for what purpose. Finally, a Medicaid trust is a special type of irrevocable living trust that is designed to shelter your assets so they can still be passed down to loved ones while ensuring that you will qualify for Medicaid benefits if you need them down the road.
For more information, please download out FREE estate planning worksheet. If you have additional questions or concerns regarding asset protection strategies, contact the experienced Illinois estate planning attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.