People often have misconceptions about living trusts. When you speak with a living trust attorney, you can come away with a clear picture. In this post, we will share some basic information a living trust attorney would provide for a typical client, with an emphasis on asset protection.
A revocable living trust is a very versatile and useful estate planning tool. Contrary to popular belief, you don’t have to be enormously wealthy to benefit from a revocable living trust.
These trusts can accomplish multiple different estate planning aims, but a revocable living trust is not a cure-all. When you look closely at the name of the trust, the word “revocable” is quite operative. You can revoke or dissolve the trust at any time, and it would no longer exist. The assets that you conveyed into the trust would once again become your direct personal property.
The person who creates the trust is called the grantor of the trust. The trustee is the trust administrator, and the beneficiary is the person who can receive monetary distributions from the trust. If you are the grantor of a revocable living trust, you can act as the trustee and the beneficiary while you are alive and well.
Since you control the actions of the trust while you are living, and you have the power of revocation, you are retaining incidents of ownership in legal jargon. Because you have this level of control, assets in a revocable living trust would be in play if you were to be the target of a lawsuit. A revocable living trust will not provide asset protection.
There are irrevocable trusts that can be used for asset protection purposes.
Benefits of Revocable Living Trusts
You may wonder why you would want to create a revocable living trust if assets in the trust are not protected from litigants seeking redress. One benefit that you gain when you use a revocable living trust is the ability to name a disability trustee.
Many elders become unable to handle all of their own affairs at some point in time. There are many causes of incapacity as we all know, but Alzheimer’s disease alone is enough to make incapacity planning essential. This disease strikes up to 45 percent of people who have reached the age of 85.
If you name a disability trustee in your trust declaration, this individual or entity would be empowered to administer the trust in the event of your incapacitation.
Benefit number two would be the ability to include stipulations that the trustee would be compelled to follow regarding the nature of the asset distributions. You do not have to allow for all of the assets in the trust to be distributed in lump sums. It would be possible to have the trustee invest the assets, and the earnings could be distributed to the beneficiaries over an extended period of time.
This is just one possibility, but the point is that you can instruct the trustee with regard to the way you want the assets passed along to the beneficiaries.
The last benefit that we will point out here is the facilitation of fast and efficient asset transfers. If you were to use a last will to state your final wishes regarding the distribution of your personal property, the will would be admitted to probate after your passing. The probate court would supervise the administration of the estate, and the heirs would have to wait out the process before they could receive their inheritances.
In most areas, a best case time frame scenario would be around nine months to a year. This delay can potentially cause genuine hardships for some inheritors.
When you use a revocable living trust as your primary vehicle of asset transfer, the trustee that you name in the trust declaration can follow your instructions and distribute assets to the beneficiaries outside of the probate process. As a result, assets could get into the hands of the beneficiaries in a more timely manner.
Postmortem Asset Protection
We have not told the entire story at when it comes to asset protection. While it is true that assets in a revocable living trusts are not protected while the grantor is alive, things change after his or her passing.
When you establish a revocable living trust, you could add a spendthrift provision. It would become irrevocable after you die, and as a result, the assets in the trust would be protected if a beneficiary was to run into financial difficulties. Though unfettered distributions would potentially be subject to attachment, distributions that were used for basic support could be protected as well.
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