An asset protection trust or an irrevocable trust is a unique financial tool. When an individual transfers their assets to an irrevocable trust, they legally give up ownership of the assets and become a beneficiary. Using such a device has at least five distinct advantages over other trusts and estate planning tools as an estate lawyer, like from the Yee Law Group, can explain.
1. Protection Against Creditors
The primary benefit of using an asset protection trust is to limit the reach of potential creditors. Many people worry about medical expenses or other significant creditors coming after their liquid and non-liquid assets. However, when you place your assets into an irrevocable trust, you are no longer the owner of those assets, which means that the creditors cannot go after them.
2. Protection Against Litigation
As with creditors, an irrevocable trust also protects your assets against lawsuits. While not every individual needs to worry about lawsuits, some professionals may be at risk of litigation, such as lawyers and doctors. By placing assets into a trust, you protect them against people filing civil claims for alleged wrongdoing.
3. Structured Distribution
Do you have a beneficiary with a disability or an heir with poor money skills? If so, placing your money and property into an irrevocable trust can protect the benefits and distribution of your assets. A trustee is the only one with the power to distribute assets. You can form a board of trustees to ensure that the distribution of benefits adheres to your wishes.
4. Replacement of a Prenuptial Agreement
Some people find the idea of a prenuptial agreement discomforting. If you do not wish to ask your fiance to sign such an agreement, then consider protecting your assets before marriage. As with lawsuits and creditors, an irrevocable trust will protect your assets from future spouses, especially during instances of divorce.
5. Protection Against Estate Tax
If you are concerned about the expense of future estate tax on your family, then consider an asset protection trust. By placing your assets into an irrevocable trust, your family will not have to worry about estate taxes on the protected assets, and they will still be able to benefit from the property or income generated through the trust.
Do not fall into the trap of a revocable trust. While a revocable trust allows you to maintain control and ownership, it does not eliminate estate tax responsibilities, regardless of how you break down ownership percentages.
An asset protection trust is an excellent estate planning tool. If you are interested in discussing more benefits or potential pitfalls, then contact a local estate attorney for more information.