After working hard for years, Reggie was happy with his financial state. He owned a home, several cars, large retirement accounts, and still managed his own business. Reggie though his assets were vulnerable to creditors and predators, and he wondered if there was something he could do. Using an online legal forms site, he decided to set up a revocable living trust for asset protection. Was this the right move?
Trusts, in General
A trust is a legal entity that usually consists of the following:
- A grantor, who creates and funds the trust;
- The trustee, who manages trust assets; and
- At least one beneficiary, who receives distributions from the estate.
Another important component is the purpose – every trust has a purpose. Some trusts transfer wealth, others excel at avoiding probate, and still others offer asset protection.
Trusts are generally either revocable or irrevocable. A revocable trust may be changed or terminated, while an irrevocable trust is difficult or impossible to alter. Also, the grantor typically does not serve as trustee for an irrevocable trust.
The question still remains: Should you use a revocable living trust for asset protection?
Revocable Living Trusts, Specifically
When people are looking for the following benefits, a revocable living trust may be the right solution:
- Avoiding Probate. Assets transferred to heirs through revocable living trusts usually pass without the need for probate. That doesn’t mean the entire estate will avoid probate, just the assets owned by the trust.
- Planning for Potential Incapacity or Disability. The grantor may serve as trustee of a revocable living trust. If the grantor is no longer able to perform his or her duties, the successor trustee can take over.
- Preserving Privacy. The details of a trust typically do not become public record.
However, revocable living trusts do have their disadvantages:
- Fewer tax benefits. Capital gains and estate taxes may be a problem for an estate based on a revocable living trust.
- No Asset Protection. The trust assets are still under the control of the grantor. As such, the assets are vulnerable to the grantor’s creditors.
Revocable living trusts are not considered to be a good estate planning tool if asset protection is a concern.
Asset Protection Is Complicated.
When you need an attorney, call Bruce Adams. He has the skills and experience to help with your business and estate planning concerns. Please contact us at 256-237-3339 to set up an appointment. Our office is located in Anniston, Alabama, but we assist clients in surrounding communities like Oxford, Jacksonville, Heflin, Gadsden, and Pell City.