Asset protection is one of many important goals for estate planning regardless of the amount of your assets. Being able to protect your assets from creditors and other liability sources can be very beneficial. Asset protection strategies are necessary if you want to preserve as much of your estate as you can for your heirs. That can only be accomplished if you properly protect your assets. Asset protection trusts are one method to consider.
When Should Asset Protection Trusts be Created?
When should you establish Los Angeles asset protection trusts? There answer is now. Generally speaking, you need to start asset protection planning before your creditors start making claims against you. While there are several ways to go about protecting your assets, many are not effective if your creditors have already made a claim against you, or some other financial liability has arisen. Why? Because in many cases, if you transfer your assets after a claim has been made, the transfer may be considered fraudulent. In other words, the courts may say that you transferred your assets in order to avoid paying your debt. For this reason, Asset protection trusts are a good choice.
The Importance of Protecting Your Assets as Soon as Possible
When it comes to easy and comprehensive asset protection, Los Angeles asset protection trusts are a good choice. How does a trust provide asset protection? Essentially, when you transfer your assets to the trust, they become the property of the trust and are removed from your estate. That means they are beyond the reach of anyone with a claim against you. They are also no longer subject to estate taxes. There are numerous types of trusts and they are all customizable, so you should go over your options with your asset protection lawyer.
Asset Protection Trusts Must be Irrevocable to Work Properly
Irrevocable trusts are the best types of asset protection trusts. The assets that are included in an irrevocable trust are permanently transferred into the trust and this transfer of ownership cannot be revoked. There are different types of irrevocable trusts, but all of them require the person who creates the trust to relinquish their control and ownership of the trust property. Some states, including California, allow for certain limited modification of an irrevocable trust, in specific situations.
The Many Benefits of an Irrevocable Trust
While an irrevocable trust is considered less flexible, there are definitely huge benefits to creating such a trust, and to giving up control of your assets. In most cases, clients create irrevocable trusts in order to avoid estate taxes on the property in the trust. This also serves to eliminate the income generated by the trust assets from your personal income, which is beneficial for tax purposes. Ultimately, because trust assets are not required to go through probate, they can be distributed to the beneficiaries more easily and more quickly.
How Do Asset Protection Trusts Work?
Basically, in order to obtain true asset protection, your trust needs to be irrevocable. Why? Once your money is transferred to the trust, it is no longer considered your money, therefore it is no longer subject to your creditors. If you still retain the authority to amend the trust and transfer the assets back to your control, then a creditor can still get its hands on those assets.
Terms You Need to Include in Asset Protection Trusts
First, the ownership interest you leave to your beneficiary must either be contingent on some future event or be subject to the sole discretion of the trustee. Another option is to include a “spendthrift” provision. This type of language keeps creditors from making a claim against your beneficiary’s interest. Just remember that the assets are only protected as long as they remain in the trust. Once they have been transferred out of the trust, they become subject to a creditor’s claim again.
How are Revocable Trusts Different from Irrevocable Trusts?
A revocable trust allows the grantor to make modifications to the terms of the trust, or to revoke the trust altogether. This can be done at any time during your lifetime. However, after your death, the trust typically becomes irrevocable. A revocable trust is quite flexible because it can be modified whenever your circumstances change. The trustee of a revocable trust does not take over until your death or incapacity.
Join us for a free seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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