A common misconception of a trust is that they are only for the wealthy, but in reality, if you own assets at any level should consider having a trust established. Establishing a trust can protect your assets from creditors, lawsuits, and ensure that your assets are distributed in the manner you decide upon death.
Protection from Creditors
In some cases, it may be best to establish a trust for keeping your assets away from those whom you owe money to. This type of trust is what is called an irrevocable trust; an irrevocable trust has the following provisions:
- It locks in assets. The term “irrevocable” literally means the trust cannot be edited, changed, or removed from
- A trustee must control the trust, someone other than you
- The trust is required to file an individual tax return
Establishing an irrevocable trust creates a separate legal entity that has control over the assets within them. If you are looking to gain protection from creditors, this type of trust should be established before there are any issues; otherwise, a claim may be made that you attempted to circumvent the law. Establishing an irrevocable trust is recommended if there are a large number of assets that will not need to be touched, and asset protection is needed.
Protection from Lawsuits
Lawsuits are unfortunately more common than you may think, and the more assets you have the more likely you are to receive a lawsuit and subsequently have more assets available to be taken. As with protection from creditors, you must establish an irrevocable trust to take advantage of this protection. Make sure to keep in mind that this trust must also be established prior to the lawsuit being filed; courts can access an irrevocable trust if it is discovered that it was established to defraud those suing you.
No one likes to think about death, but leaving your assets unprotected upon death can create a mess for those you leave behind. Failure to establish a trust can lead to arguments between family, failure to complete your wishes, or even creditors making a claim against your estate after death. If you do not have a trust established your estate will be required to go through probate. Probate is a complicated legal process that can take months, and drain your estate of its assets through legal fees. For this sort of protection, using a revocable or irrevocable trust is up to you. Irrevocable trusts have been mentioned above, and revocable trusts are excellent for managing assets upon death, but would not protect from creditors or lawsuits while you are still living. Revocable trusts can be added to and changed, as well as the names of beneficiaries that can be adjusted as needed.
Various Types of Trusts
Revocable and irrevocable trusts are two of the more common types available, as we have seen there are other options based on your needs. Contacting an attorney will help you receive a better understanding of what options are available to you and what best fits your situation. Below are some other types of trust that may fit your needs:
- Bypass Trust- This is a type of irrevocable trust that pays income out to the settlor’s spouse for the duration of the spouse’s life.
- Dynasty Trust- Allows for the passing of wealth from generation to generation without incurring estate taxes with each transfer.
- Life Insurance Trust- Although complex and irrevocable, this grants further control over life insurance policy payouts upon death.
- Qualified Terminable Interest Property (QTIP)- QTIP Trusts allows the grantor to provide for the surviving spouse, and then dictates what happens to the remainder of the assets upon the spouse’s death.
It is always best to ensure that your assets are protected, and wishes are fulfilled; creating a trust is a great way to do that. Contact Levoritz Law Group to ensure you are protected.