In estate planning, a popular and powerful tool is the asset protection trust. These trusts bar creditors from touching your assets. Now, in order to establish this type of protection, you have to make sure that you set up the asset protection trust correctly.
The most advantageous trust for asset protection is the irrevocable trust. If you owe creditors money, odds are they will take you to court. Even if you lose and have to pay a settlement, the assets in an irrevocable trust technically do not belong to you. They belong to the trustee that you appoint. Since they are in your trustee’s hands, the creditors cannot touch them.
With trusts, you can choose between a domestic trust and a foreign trust. You establish domestic trusts in the U.S, if permitted by your state. This is less costly than a foreign trust. Foreign trusts offer more protection but are more costly.
The one thing that tends to turn people away from asset protection trusts is the fact that they are more complex. To draw a will is relatively simple comparatively. If you want a trust, then it takes a lot more effort and time, not to mention you have to have the appropriate funding. Then, if you ever want to revoke a trust, you have to go through an entire process to do it. You would have to redefine the distribution of your assets. Of course, having a revocable trust can help eliminate some of those complications, but adds new ones.
For instance, a revocable trust is not entirely safe from creditors. You still have complete power over the trust and can add and remove assets whenever you want to. Creditors can file a lawsuit against you and the court may order the trust to pay the creditors. Irrevocable trusts provide you with protection, but you cannot revoke it. You have no control over the assets in the trust. Instead, a trustee has control and manages the trust.
When it comes to asset protection, trusts are really the best recourse. Of course, given the complexities of the law, it is crucial to meet with an estate planning lawyer to figure out how to draw up your trust and to make sure that it is legal and binding. If you make a mistake, your assets could be up for grabs from creditors. A lawyer can ensure that it is a valid trust and asset protection plan. Consult with a estate planning lawyer in King of Prussia, PA today.
Thanks to Klenk Law for their insight into estate planning and asset protection trusts.