It’s true that a revocable trust is a fine estate planning tool for many people. If you’re concerned about protecting your assets from creditors, it may not be your best move. Creditors can indeed set their sights on the revocable trust.
Let’s take a look at the revocable living trust.
These are legal documents that allow you to name someone to manage your property while you’re still living. You create the trust, the trustee is named by you to manage the assets within the trust and the beneficiaries, who will receive those assets as part of their inheritance.
They’re a favorite in the estate planning world for two primary reasons: first, they allow your estate to bypass probate and second, you can change the trust at any time: add or remove heirs, change the assets, etc.
Because of this versatility, you remain the owner of the trust and because creditors can attach liens to anything owned by someone who’s defaulted on his debt, this means creditors can indeed try to take the assets in their efforts of recovering their losses.
So if a revocable trust isn’t going to help in your efforts of protecting your assets, you may wonder what vehicle will help you accomplish that. This is where an irrevocable trust comes in. These allow you to separate your name from those assets. If you’re sued, creditors can’t touch those assets since you no longer “own” the assets; the trust itself does. On the flipside, you can’t backtrack and take control of those assets once they’re irrevocable.
A dynasty trust might be a good solution for your needs. It’s a type of generation-skipping-transfer trust. There are potential tax benefits and they can also provide for the protection of mom and dad’s assets from the creditors of successive generations as they pass from one generation to the next. Typically, the generations below mom and dad would receive discretionary income distributions for life but not principal distributions.
The principal remains in trust. If a beneficiary is subject to a creditor’s claim, the trust will specify that the trustee shall stop payments to the affected beneficiary. Once the beneficiary is no longer subject to a creditor’s claim, payments to the affected beneficiary would resume. That being said, the trustee is often given the power to make distributions for education and medical expenses if needed. Similarly, if a beneficiary has special needs, the trustee is given the power to make distributions. Such distributions are made to the provider as opposed to the beneficiary.
There’s always a solution and the good news is that in estate planning, there are always options, as well.
Your best decision is to contact a qualified estate planning lawyer. The experienced team at DeBruyckere Law Offices PC can help ensure there are no weaknesses in your efforts and can provide peace of mind that your legal and financial bases are covered.