Trusts are an excellent tool for estate planning and asset protection purposes. The most common type of trust is a Revocable Living Trust, which holds your assets and helps avoid the probate process when you pass away. However, Revocable Living Trusts do not help much when it comes to asset protection planning.
What Can I Do with a Revocable Living Trust?
As stated above, a Revocable Living Trust is an essential tool for avoiding probate. If you own enough assets to qualify for a full probate proceeding when you pass away, then you will most likely benefit from a Revocable Living Trust. Assets placed in the trust, such as a home and financial accounts, can pass to your beneficiaries without going through the probate process. This saves your loved ones time and money and provides a level of privacy for your personal affairs. A successor trustee of your choosing can also manage any finances you place in your Revocable Living Trust if you ever become incapacitated, or even if you just do not care to handle your own financial affairs anymore.
Will a Revocable Living Trust Protect My Assets?
Revocable Living Trusts do not protect assets from financial predators. If you owe money to creditors, then those creditors may take assets from your trust, even though the trust is technically the legal owner of the assets. Your Revocable Living Trust is not suitable for asset protection purposes because you are still considered the owner of the assets if you are the trustee because you have complete control over the trust. There are no restrictions on how you can spend the assets in the Revocable Living Trust, and you can revoke the trust at any time. Revoking the trust means the assets will revert to your direct ownership, putting them back under your control. In addition, all assets in the Revocable Living 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. This is different from Irrevocable Trusts, which have their own tax identification numbers.
If you are interested in learning more about how certain Irrevocable Trusts can be used for asset protection purposes, or if you’d like to learn more about estate planning with a Revocable Living Trust, please contact our Sarasota trust attorneys at 941-909-4644 to set up a planning strategy session.