If you are fortunate enough to have amassed a moderate to large estate, chances are good that your future didn’t occur as a result of luck. Instead, you have likely worked hard, invested wisely, and saved prudently throughout your lifetime. Understandably, you now want to protect those assets you have from a wide range of potential threats. Your estate plan is the perfect mechanism for doing just that. By including an asset protection trust in your estate plan you will ensure that the assets you have built up as a result of your hard work and sacrifice throughout your life are safe.
Why Do You Need to Protect Your Assets?
People often make the mistake of operating under the assumption that as long as they are fiscally responsible their assets will remain safe. Unfortunately, that is not always the case. There are a number of potential threats to your assets throughout your lifetime – and beyond – including, but not limited to, the following:
Creditors – clearly, your own creditors could be a threat to your assets in the event you fail to pay bills, or otherwise default on obligations; however, have you also considered the possibility that creditors of a beneficiary could also threaten your hard-earned assets? The moment you transfer assets to a beneficiary they become fair game for creditors of that beneficiary.
Divorce – likewise, you could lose assets as a result of your own divorce; however, they could also be lost as a result of the divorce of a beneficiary. Even in states that do not have a community property law, if your beneficiary co-mingles an inheritance, the assets that make up the inheritance could be considered marital property and, therefore, be subject to division in the event of a divorce. For example, your assets could, conceivably, end up owned by your daughter’s ex-husband.
Bankruptcy – again, your own bankruptcy may not be likely; however, if you own a business your personal assets could be at risk if the business fails. Yet again, assets are also at risk if a beneficiary files for bankruptcy protection if ownership of those assets have already been legally transferred to the beneficiary.
Health care costs – finally, all the planning and saving you have done could be threatened by your own rising health care costs during your retirement years. If you need to spend time in a long-term care facility you may end up having to use your assets to cover the high costs of care before Medicaid will kick in and start helping – unless you have included Medicaid planning in your estate plan ahead of time.
How Can an Asset Protection Trust Help?
A trust is a separate legal entity that can own property, cash, and other types of assets. When you transfer assets into the right type of trust, ownership of the asset transfers to the trust. Beneficiaries of the trust are only entitled to distributions from the trust according to the trust terms — they do not own the assets held by the trust. An irrevocable living trust, for example, cannot be changed, modified, or revoked by the Maker of the trust. Therefore, once an asset is transferred into the trust the original owner of the asset gives up all legal ownership rights to the asset. As such, the assets are protected both from creditors of the original owner and creditors of the beneficiaries of the trust. By the same token, because a beneficiary does not own the assets held by the trust, those assets do not become part of a bankruptcy or divorce proceeding in which the beneficiary is a party. The right type of irrevocable assets protection trust can also be used to shelter assets for Medicaid eligibility purposes. You have the ability to transfer the assets into the trust to protect them while still benefiting from the interest earned on the assets during your lifetime. After your death, the assets will be used to help provide for beneficiaries.
This are only some of the many ways in which an assets protection trust can be used to help you protect the assets you have worked so hard to build up over your lifetime.
If you have additional questions or concerns asset protection trusts, or any other estate planning issues, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
- Gen X – This One’s for You (Really Every Generation Should Read This) - September 27, 2023
- R-E-S-P-E-C-T Find Out What It Means To…Your Estate Plan - September 20, 2023
- What We Can All Learn from Diller v. Richardson – Part II - September 13, 2023