One of the primary motivations for creating your estate plan is likely the desire to ensure that your estate assets are used to help provide and care for your loved ones in the event of your death. For that to happen, however, you must not only acquire sufficient assets, but also protect those assets over the course of your lifetime. Some threats to your estate assets may be obvious, such as creditors, economic downturns, and divorce. Other threats, however, are not as obvious, such as the cost of long-term care, in-laws, or personal liability for business failures. The Woburn asset protection attorneys at DeBruyckere Law Offices explain how an irrevocable living trust can help protect your hard-earned assets.
Elements of a Trust
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. All trusts start out the same because all trust require the same basic elements for creation, including:
- Settlor – the person who creates the trust. Also referred to as a “Grantor,” “Maker,” or “Trustor.”
- Trustee – the individual or organization responsible for administering the trust and managing trust property.
- Beneficiary – the person, organization, or even family pet that benefits from the trust. A trust may have an unlimited number of beneficiaries. May also have current and future beneficiaries.
- Terms – created by the Settlor, the terms guide the operation of the trust and may include anything the Settlor wishes as long as it is not illegal or unconscionable.
- Funding – almost any type of assets may be used to fund a trust, including cash, securities, real property, or the proceeds of a life insurance policy.
Basics Types of Trusts
All trust fall into one of two general categories. The first is a testamentary trust which does not activate until a provision in the Settlor’s Will causes it to activate upon the death of the Settlor. A living trust, as the name implies, is a trust that activates while the Settlor is alive and as soon as all formalities of creation are in place. Living trusts can also be divided yet again into two categories – revocable and irrevocable living trusts. If you create a revocable living trust you retain the ability to modify or revoke the trust at any time and for any reason, or without providing a reason. On the other hand, if you establish an irrevocable living trust you can never modify nor revoke the trust for any reason. This distinction between revocable and irrevocable living trusts is crucial when discussing the use of a trust as an asset protection tool.
Why Only an Irrevocable Living Trust Can Help Protect Assets
A trust can be an effective asset protection tool if the right type of trust is created. Neither a testamentary trust nor a revocable living trust will work as an asset protection tool because assets held in either trust remain accessible to the Settlor. Consequently, the law considers those assets to be fair game for creditors or spouses as well as considers those assets when considering your eligibility for Medicaid as a senior if you ever need help covering the high cost of long-term care. On the other hand, assets transferred into an irrevocable living trust become the property of the trust once the transfer is complete. As such, the Settlor no longer has a legal interest in the assets held in the trust which means that the assets are not accessible by creditors of the Settlor, a spouse in a divorce, or others who might threaten the assets. While there are a number of specialized trusts that are used as asset protection tools, the important common thread is that they are all irrevocable living trusts.
Contact Woburn Asset Protection Attorneys
For more information, download our FREE estate plan worksheet. If you have additional questions or concerns relating to asset protection, contact the experienced Woburn asset protection attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.