When you contemplate your estate plan, your focus is likely on creating a plan that ensures your loved ones will be cared for after you are gone. Executing a Last Will and Testament is one way to pass down assets that will provide for your loved ones in your absence; however, there must be assets left to pass down for that to work. The estate you work so hard to build up while you are alive can only help those you leave behind if your estate assets survive long enough to do so. It is for this reason that many people choose to include asset protection as an additional estate planning consideration when creating their plan. You may have heard that a trust works well as an asset protection tool. A trust can, indeed, help to protect your assets if the right type of trust is used. To help you better understand, the Lincolnshire asset protection lawyers at Hedeker Law, Ltd. explain the difference between a revocable and an irrevocable trust as well as explain which type can effectively be used as an asset protection tool.
Elements of a Trust
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. All trusts require the same basic elements for creation, including:
- Settlor – the person who creates the trust
- Trustee – the individual or organization responsible for administering the trust and managing trust property.
- Beneficiary – the person, organization, or even family pet that benefits from the trust. A trust may have an unlimited number of beneficiaries. May also have current and future beneficiaries.
- Terms – created by the Settlor, the terms guide the operation of the trust and may include anything the Settlor wishes as long as it is not illegal or unconscionable.
- Funding – almost any type of assets may be used to fund a trust, including cash, securities, real property, or the proceeds of a life insurance policy.
All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. As the names imply, a revocable living trust is one that can be modified or revoked by the Settlor any time and without the need to provide an explanation. An irrevocable trust, on the other hand, cannot be modified or revoked by the Settlor after the trust activates. Because a testamentary trust is triggered by the Settlor’s Will, and a Will is always revocable up to the point of the Testator’s death, a testamentary trust is always revocable.
Using a Trust As an Asset Protection Tool
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. 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. 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 Lincolnshire Asset Protection Lawyers
Please feel free to download our FREE estate planning worksheet. If you have questions or concerns regarding asset protection strategies in Illinois, contact the experienced Lincolnshire asset protection lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.
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