Trusts are a popular addition to an estate plan due in large part to the flexibility a trust offers and the numerous goals that can be accomplished with a trust. Although the primary goal of your estate plan is likely to ensure that your assets are divided according to your wishes when you die, you likely have additional goals that you wish to include in your estate plan. Asset protection is one goal that people often include in an estate plan. A trust can be used to protect assets; however, the right type of trust must be used to ensure your assets are safe. A revocable living trust, for example, is not the best choice if asset protection is your primary goal.
A trust can be a testamentary trust or an inter vivos (living) trust. Trusts are further divided into revocable and irrevocable trusts. A testamentary trust takes effect when you die while a living trust takes effect during your lifetime. As the names imply, an irrevocable trust cannot be changed by the maker of the trust while a revocable trust can be changed or terminated at any time by the maker. Therefore, a revocable living trust is a trust that takes effect during your lifetime and that can be changed or revoked by you at any time and for any reason.
A revocable living trust doesn’t work as an asset protection tool because potential creditors are still able to reach the assets held by the trust. Although a revocable living trust is a separate entity for tax purposes, you (as the maker of the trust) retain virtually complete control over the assets held by the trust. Typically, the maker of a revocable living trust names himself/herself as the trustee of the trust, meaning the maker retains management control over the trust property. Another reason the law does not allow assets to be shielded in a revocable living trust is that the maker of the trust can revoke and terminate the trust at any time. If that occurs, the assets held by the trust will simply go right back to the maker in most cases.
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A trust can be used as an asset protection tool – you just need to create the right type of trust. Consult with an experienced estate planning attorney if you wish to use a revocable living trust in St. Louis for asset protection in your estate plan. Call us at 314-966-8077 or contact us online if you’re ready to get started.