Living trusts can be a beneficial part of an estate plan. But, if your goal is to have trusts provide asset protection, there may be other steps you need to take. Revocable living trusts do not protect your assets from individuals with legal claims against you, because, for legal purposes, you are still considered the owner of the trust assets. So, there is virtually no protection against creditors.
Why can’t Revocable Living Trusts provide asset protection
When you set up a typical revocable living trust, usually for the purpose of avoiding probate, you name yourself as the trustee. That way you can maintain complete control over the assets you transfer to the trust. Since you can transfer property to the trust, take it out, sell it or give it away with no restrictions, the assets still belong to you. The other reason the assets are considered yours is the fact that the trust is revocable. This means you can revoke it at any time and, if you do, the assets would again be in your name as owner. However, if you transfer your assets into an irrevocable trust, that is a trust you do not control and do not maintain the ability to revoke, those assets will not be available to creditors.
Start Asset Protection Planning Now
An effective asset protection plan must be established before a claim or liability arises, not after. Transactions that occur after a claim arises will likely be seen as violations of the “fraudulent transfer” law and could be undone. Another important reason to start planning now, is that many people have no idea when a claim might arise. Once you have received a demand for payment or been served with a lawsuit, it is too late.
Revocable Living Trusts are still valuable estate planning tools
The primary purpose of a revocable living trust is to save your loved ones the expense and hassle of going through the probate process after your death. Unlike property left through a will, property left to others through a living trust need not go through the probate process in order to be passed on to those you have chosen. Essentially, assets left in a trust will allow your surviving family members to avoid a probate court proceeding, which can take anywhere from six months to a year. Probate also costs the estate three to five percent of its value, depending on where you live and how complicated your financial and family situations may be.
Living trusts also have other benefits. If you ever become incapacitated, your “successor trustee”—the person you name in the trust document to take over the trust after your death—will be able to step in and manage trust assets. This provision proves very useful in an emergency situation or in the case of a serious, chronic illness.
If you have questions regarding a living trust, or any other estate planning needs, please contact Wilcox Attorneys, PA online, or by calling us at (479) 443-0062.
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