Asset protection is something that many people are concerned about. You certainly want to make sure that your assets are protected for your own purposes, and these concerns will naturally extend to resources that you will be leaving behind to your heirs.
Do Trusts Protect Assets?
Some people are under the impression that you can protect assets by placing them into any type of trust. This is not the case.
For example, let’s look at revocable living trusts. These trusts are very popular, but they do not provide asset protection.
Why is this? With a revocable living trust you are retaining incidents of ownership. You have the right of revocation. You can revoke the trust at any time, and you can change the terms.
It is also possible to act as the trustee and the beneficiary while you are still living. You do not surrender control. As a result, you could use this control to satisfy creditors and/or litigants. This is why the assets placed in the trust are not protected. From a legal perspective, there is nothing stopping you from using the assets to satisfy the judgments.
There are also irrevocable trusts. Generally speaking, you as the grantor of an irrevocable trust do in fact relinquish control. As a result, they are protected and out of the reach of creditors and claimants.
It is important to note that it is possible to provide asset protection in your revocable living trust for the inheritance your heirs will receive. That topic will be the discussion of a future article.
Asset Protection Planning
If you are interested in learning about asset protection in detail, you should certainly discuss everything with a licensed estate planning attorney. The utilization of an an irrevocable trust or trusts can be part of the plan.
There are other legal instruments that are used to protect assets as well. These would include family limited partnerships and limited liability companies. With these devices you can separate the actions of your business or businesses from your own personal finances.
When you use these legal structures, your personal assets would be out of play during litigation.
Some of the legal devices that are used to protect assets can also provide estate tax efficiency. The federal estate tax carries a $5.34 million exclusion in 2014. The maximum rate is 40 percent. High net worth families should certainly take steps to protect assets and mitigate estate tax exposure.
If you would like to discuss your personal situation with a licensed professional, feel free to contact our firm to schedule a free consultation. We have helped many families in the greater San Jose area, and we would be glad to assist you.
Each situation is different. You should create an estate plan that is custom crafted to suit your specific needs. There are many options available to you, and you should be fully apprised of them before you make any assumptions or decisions.