Trusts are excellent legal tools that can be used to accomplish most estate planning and asset protection planning goals. The most common type of trust is a Revocable Living Trust which will hold your assets and help avoid the Butler County probate process when you pass away. However, estate planning lawyers warn that Revocable Living Trusts do not provide much help to you when it comes to asset protection planning.
How should I use a Revocable Living Trust?
While you’re working with an estate planning lawyer, you’ll learn whether or not a Revocable Living Trust is an appropriate tool to use in your situation. If you own enough assets that your estate will have to go through a full probate proceeding when you pass away, then you will most likely benefit from creating a Revocable Living Trust. Assets placed in the trust, such as a home, other real property, and financial accounts, can pass to your beneficiaries without the approval of the probate judge. This will save your loved ones time and money and will provide a level of privacy for your personal affairs. In addition, a successor trustee of your choice can also temporarily manage any finances you place in your Revocable Living Trust if you ever become incapacitated or are otherwise unable to handle your own financial affairs.
Revocable Living Trusts and Asset Protection Planning
Unfortunately, the benefits of a Revocable Living Trust do not extend to asset protection planning. This means that if you owe money to creditors, the creditors will be able to take assets from your trust (even though the trust is technically the legal owner of the assets) in order to pay your debts. Your Revocable Living Trust is not suitable for asset protection purposes because while the trust is the legal owner of the assets held within it, you are still considered the owner of the assets if you are the trustee (and, in some cases, even if you’re not the trustee) because you have complete control over the trust. There are no restrictions on how you can spend the assets in the trust, and you can revoke the trust at any time – meaning the assets will revert to your direct ownership. In addition, all assets in the trust are reported to the IRS for tax purposes under your Social Security number, meaning there is even less separation between you as an individual and the Revocable Living Trust.
If you are interested in protecting assets, you should consult with an estate planning or asset protection planning attorney. There are different, more complex types of irrevocable trusts that can achieve many of your asset protection goals. If you are interested in learning more about how certain trusts can be used for asset protection purposes, or if you’d like to know more about estate planning with a Revocable Living Trust, please contact us to set up a consultation.