A comprehensive estate plan will not only decide what happens to your assets when you are gone, but will also help protect and grow those assets while you are alive. In order to do that, you may need to include additional estate planning tools and strategies in your plan above and beyond your Last Will and Testament. One common addition to a well thought out estate plan is a trust. Although trusts were once used primarily by the wealthy, they are now often found in the average person’s estate plan. If one of your estate planning goals is to protect your assets from creditors, you need to know what type of St. Louis trusts are best for asset protection. While it is always best to consult with an experienced Missouri estate planning attorney about your specific circumstances, knowing more about trusts and how they can be used to help protect your assets may also be beneficial.
What Is a Trust?
At its most basic, a trust is a legal relationship, or agreement, whereby property is held by one party for the benefit of another. A trust is created by a “Settlor”, also referred to a “Maker,” “Grantor,” or “Trustor,” who transfers property to a Trustee. The trustee holds that property for the beneficiaries named in the trust. Although you may not realize it, you enter into small trust agreements all the time. Imagine, for example, that you are going out of town and you ask your neighbor to hold onto a package until your sister can get by to pick it up. In that case, you are the Settlor, your neighbor is the Trustee and your sister the beneficiary of the trust agreement.
What Is the Difference between a Testamentary Trust and a Living Trust?
When creating a trust, the first decision you must make is whether you need a testamentary trust or an inter vivos (living) trust. A testamentary trust is one that does not activate until the death of the Settlor. A living trust, on the other hand, becomes active as soon as all the elements of creation are satisfied. Clearly, if protecting your asset from creditors is your goal you will need to create a living trust so that it can accomplish that goal now.
Revocable or Irrevocable?
Trusts are also further divided into revocable and irrevocable trusts. A revocable trust can be modified, amended, or revoked by the Settlor at any time and for any reason. An irrevocable living trust cannot be modified, amended, or revoked by the Settlor for any reason. As a general rule, an irrevocable living trust can only be modified or revoked by a judge after petitioning the court. A living trust can be revocable or irrevocable. A testamentary trust is always revocable until the death of the Settlor at which time it becomes an irrevocable trust. Since only a living trust can help you with asset protection, you will need to decide if you need a revocable or irrevocable living trust.
Why an Irrevocable Living Trust Is Necessary
If your goal is to protect your assets from creditors, you will need to create an irrevocable living tr ust because only an irrevocable trust will accomplish that goal. When you transfer assets into an irrevocable living trust the assets become the property of the trust, meaning you are no longer the legal owner of those assets. As such, creditors cannot reach those assets. When you transfer assets into a revocable living trust, on the other hand, you may still be able to access them because a revocable living trust can be modified. Therefore, you can move assets into and out of the trust as often as you wish, whereas with an irrevocable living trust once an asset is transferred into the trust it cannot be transferred back out again. If protecting assets from creditors is your objective, therefore, you will want to focus on irrevocable living trusts.
If you have additional questions or concerns about protecting assets from creditors using St. Louis trusts, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.