Asset Protection Trusts

An asset protection trust is a contract between the person protecting his or her assets (grantor) and the person designated to manage these assets (trustee). The trustee’s job is to manage these assets for all of the beneficiaries the grantor has selected. This contract requires the grantor to transfer his or her assets to an entity for which the contract was created. There are irrevocable and revocable trusts. Revocable trusts are a great way to avoid probate. However, they do not offer asset protection. If you are looking for asset protection, irrevocable living trusts are the way to go. Let me explain.

Irrevocable Trusts provide Asset Protection

An irrevocable trust occurs if the grantor forgoes complete control to a trustee who will use his or her discretion as to manage the assets for the beneficiaries of the trust. The trustee’s main goal is to protect these assets at any cost. This requires acting impartially and selflessly, so that the beneficiaries of the trust are treated in the manner detailed by the grantor. An irrevocable trust is seen by many as the only significant asset protection entity for preventing lawsuits, skipping probate, and avoiding estate taxes. Many are unaware of this, but this is the only entity available to help you avoid the mandatory spend-down provisions for qualifying into a nursing home.

Revocable vs. Irrevocable Trusts

A revocable trust occurs when the grantor transfers the assets to a trust with strings attached. In this situation the grantor, the trustee, and the beneficiary are the same person. This vehicle adds as a way to pass your assets through to your beneficiaries and therefore bypassing the legal process known as probate. It also can also help the beneficiaries avoid estate taxes. However, because it is a revocable trust it does not offer asset protection for the grantor.

Irrevocable Trusts plus an LLC

To add further asset protection, it would be wise to combine an irrevocable trust with an LLC. An LLC is a limited liability company. An LLC is a legal business entity that provides limited liability to its owners. Many real estate investors hold property in an LLC, to avoid frivolous lawsuits by tenants. Keeping the trust’s assets in the LLC will allow the owner of the LLC to avoid having these assets seized by someone who enjoys suing someone at the drop of a hat. If you had your house in a trust, and the trust was in your name, that person could seize your house if you could not pay them. This would be a major problem for most individuals. If the house, which was in the trust, were held by the LLC, it would not appear in your name. Therefore, they would not be able to seize the house or any of the assets in your trust. This is a great way to provide holdings with asset protection and avoid probate.