In the field of estate planning there is a commonly utilized type of trust called a revocable living trust. Sometimes people who are not familiar with these legal devices will make sweeping assumptions. You may hear that revocable living trusts do not provide asset protection. As a result, you may come away with the idea that trusts in general do not protect assets.
We would like to look at the matter of trusts and asset protection this post.
Revocable Living Trusts
Revocable living trusts are just that, revocable. The person creating the trust is called the grantor. The grantor can dissolve or revoke the trust at any time. He or she does not really surrender control of the assets that have been conveyed into the trust.
The grantor can revoke the trust and travel around the world, hitting the roulette tables in Monte Carlo. Since this is possible, he or she could also use the funds that have been conveyed into the trust to pay legal judgments. This is why assets that have been placed into a revocable living trust are not protected.
What are these trusts good for? When you convey assets into a revocable living trust, they can be distributed to the beneficiary or beneficiaries after you die outside of probate.
Probate is often avoided because it can be time-consuming, and there are considerable costs that can accumulate during the probate process.
Irrevocable Trusts
In addition to revocable trusts, there are also irrevocable trusts. To make a general statement, assets that have been conveyed into this type of trust would be protected from creditors and claimants.
This is because you are surrendering incidents of ownership if you are the grantor of an irrevocable trust. You can’t revoke or dissolve it. Theoretically the terms of this type of trust cannot be changed. However, under certain circumstances this may be possible under a special power of appointment. That however is a subject to cover at a different time.
One type of irrevocable trust that could be useful for those who are looking for asset protection along with estate tax efficiency would be the generation-skipping trust.
There are some states that actually allow self settled irrevocable asset protection trusts that allow for the grantor to act as the beneficiary.
Free Asset Protection Consultation
There is no reason to speculate if you have questions about somewhat complicated estate planning matters. Estate planning attorneys routinely provide these answers for a living.
If you would like to take steps to protect the wealth that you have earned for your own benefit and that of those who will be receiving inheritances from you someday, contact our firm to schedule a free asset protection consultation.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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