Over the course of your lifetime, you will probably work toward building up your estate assets so that they can provide for you and your loved ones down the road. Acquiring assets, however, should not be your only goal. You also need to protect the assets you acquire. Your estate plan can help you do just that through the use of asset protection tools and strategies. Certain types of trusts, for example, will keep your estate assets safe from all types of threats. The key to keeping assets safe can be found in understanding trusts and knowing which type you need to create to protect your hard-earned assets.
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker, Grantor, or Trustor who transfers property to a Trustee chosen by the Settlor. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries.
All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason unless a court grants the right to revoke or modify the trust.
Can Trusts Protect My Assets?
Although there was a time when trusts were used almost exclusively by wealthy families to shelter and protect the family fortune, trusts are now commonly found in the estate plan of the average person. In fact, trusts have evolved to the point where a trust can help with almost any estate planning goal, including asset protection. The key, however, is to know which type of trust you need.
If the primary purpose of the trust you create will be to protect your assets, you will need to create an irrevocable living trust. The reason for this is that assets held in a revocable living trust remain accessible to creditors and other threats. Because the Settlor of a revocable living trust retains the ability to modify the trust, including the ability to transfer assets back out of the trust, the law does not consider assets held in a revocable living trust to be trust assets. The Settlor retains some ownership interest in those assets because he/she is able to access the assets and transfer them back into his/her name, sell them, or encumber them. Conversely, assets held in an irrevocable living trust are legally considered to be trust property.
Unlike the Settlor of a revocable trust, the Settlor of an irrevocable trust does not retain the ability to access assets once they have been transferred into the trust. As such, all ownership interest in the assets evaporates when the assets are transferred into the trust. As trust assets, those assets are safe from creditors of the Settlor and other threats to those assets. Keep in mind, however, that for a trust to serve as an asset protection tool, you cannot appoint yourself as the Trustee nor can you be a beneficiary of the trust in most cases – though you may be able to continue to benefit from the interest earned on the assets if you create the right type of irrevocable living trust.
Contact a Westport Trusts Attorneys
For more information, download our FREE estate planning worksheet. If you have additional questions or concerns about the type of trust you need to create to protect your estate assets, contact the experienced Westport trust attorneys at Nirenstein, Horowitz & Associates, P.C. by calling (860) 548-1000 to schedule an appointment.