What a Living Trust Can’t Do
A living trust serves many important purposes, but if you’re looking for it to protect your assets, you might want to rethink that strategy. While some trusts can protect your assets from creditors and others, including former spouses, missing one detail can cost you in the long run. It’s still widely believed that a living trust is the “cure all” but if it’s a shield for your assets that you’re looking for, this just isn’t that cure.
So what can a living trust do, then? These are typically recommended by attorneys who have clients in the process of preparing their Wills and who are interested in avoiding probate after their death. They’re often looking for ways to shield their families from the process and in those instances, a living trust is ideal. Unlike your Will, the assets and property that you leave to others via the living trust is able to bypass the approval process of a probate court. This can eliminate that lengthy process that can take up to a year or longer to complete.
A living trust can also provide protections should you become incapacitated. Because you name a trustee to step up after your death, that same person can also manage your assets if you are incapacitated. Again, it can save your family and loved ones the hassle of the court’s intervention.
Why a Living Trust Isn’t the Solution
In the concept of a revocable trust, you remain the owner of the assets and if you’re sued, those assets are fair game. As long as you’re the owner, you can move those assets around, add to or take away from it as well. There are no restrictions at all, which many creditors say works against them in their efforts of collecting assets.
It’s not a level playing field, so to speak. As long as you have control over it, you can use it as a way of sidetracking those creditors that you may (or may not) owe. Those same assets you’re trying to protect are also taxable as long as they’re in a revocable designation. Any income that is due to any of those assets will have to be included on your personal taxes.
What Will Work?
If a revocable trust isn’t going to help in your efforts of protecting your assets, what Will? The irrevocable trust is likely your better choice. It allows you to separate yourself and your name from those assets. If you’re sued, creditors can’t touch those assets since you technically no longer own them. On the flipside, you can’t backtrack and take control of those assets once they’re irrevocable. You have no control, either, as to what happens with it.
Another option might be a family limited partnership. This requires you to set up a limited liability company, which isn’t a great option for some.
Your best bet is to start with a qualified estate planning lawyer. He can provide direction on various state and federal laws and he can prevent any weaknesses that could leave you vulnerable. If you’d like to learn more about the role of trusts in your estate plan, contact our offices today.