So you’ve worked all your life to create a legacy. Did you know that all your hard work can disappear?

This can happen if you’re sued or upon death, even when you’ve created a trust to shield your assets. Yes, that’s right. Even when you plan ahead your assets could be seized.

Trusts can be great tools for creditor protection, but only if you do it the right way. If you are here it means that you want to protect your assets, but want to make sure you’re doing it right.

Now the question is, are trusts protected from creditors?

Creditor Protection: Where to Start?

Before we get into if trusts are protected from creditors, we’ve to start with the basics. What is a trust? How do they work?

A trust is an arrangement where the settlor or trust maker transfers the ownership of their assets, to be managed by a trustee, for the benefit of a person or group of people, also known as beneficiaries. The 2 most common types of trusts are revocable living trust and irrevocable trust.

A revocable living trust is a trust that’s created while you’re alive. The purpose of this legal document is to provide the instructions on how your assets will be handled when you pass away. It’s different to a will because it can prevent the court from controlling your assets, and avoid probate upon death.

Also in a revocable trust, the settlor keeps the control of the assets. While an irrevocable trust, the trust maker loses the ownership of the assets. Another thing that makes it different is that it can’t be amended or revoked.

How Do Trusts Work?

Many people get wills to establish how their assets will be handled when they pass away. But, a lawyer might recommend a trust instead. They might suggest a revocable trust or an irrevocable trust.

You might be asking yourself, how do these work? A revocable trust can be established tying it up with your will. Many lawyers advise their clients to do this because it saves their family members court proceedings.

This process is known as probate. If there’s a will, it will have to go through the court probate process to confirm the distribution of the assets. This process can take from 6 months to a year and can cost your survivors from 3 to 5 percent of the assets.

Also, this type of trust helps in case you’re incapacitated, because if this happens your trustee will handle your assets in accordance with your trust provisions. This means that the court won’t assign an administrator, and your wishes will be followed.

In a revocable trust, you keep the ownership, and control over your assets. This is different in an irrevocable trust because the court won’t consider you the owner of the assets. It’s like this because you will lose all control and ownership of the property included in the trust.

Are Trusts Protected from Creditors?

You might be asking yourself, will a trust protect my assets? The answer is yes, but not all trusts are created equal. Not all types of trusts can protect your assets from creditors.

The only type of trust that can protect your property is an irrevocable trust. Once you put your assets in this trust, you aren’t the owner or control these assets anymore. Therefore, you can’t modify how they’re distributed.

Since you aren’t the owner of the assets, when there’s a judgment from a creditor against you, they won’t be able to seize the property that’s included in the trust.

Why Should You Establish a Trust?

There are many reasons why you should create a trust, but the most important is to protect your assets. If you want to do this is because you want to be prepared for when or if the worse happens.

In the event that lawsuits against you or even death occur, a trust can protect your assets from creditors and people who want to take advantage of the situation.

If your assets are in a trust, the courts and creditors can’t seize those assets. Yet, they could go against the assets that aren’t in the trust. This only applies to irrevocable trusts.

It only applies to this type of trust, because it creates a separate legal entity with control and ownership over those assets. The court and creditors could still seize your property, but only the assets that aren’t in the trust.

Many people think that having a will guarantees that their wishes will be followed when distributing their assets. Yet, even if there’s a will there are complications that can happen.

Besides the fact that a trust will help avoid the long probate process. These can prevent debts not being paid off, certain heirs receiving more than you intended them to receive, money designated for charities of being distributed elsewhere, among other possible issues.

Cost-Effective Creditor Protection

Another option you may consider to be prepared in the event of death is a testamentary trust. This trust is programmed to be created upon death and will include your life insurance policy proceeds, or all the assets of your estate.

Some people prefer this type of trust because it will protect your assets after death, without all the costs involved in the maintenance of a trust. But, it will also allow the distribution of your assets without them going through the probate process, or causing any financial hardship on your loved ones.

Wrapping It Up

You shouldn’t have to continuously worry about your assets being seized, or end up in the wrong hands. If you’re in the process of writing your will or are looking for ways to protect your assets now you know that trusts are protected from creditors.

Remember that you’ll get creditor protection only if you leave your property in an irrevocable trust, or a testamentary trust if your purpose is protection upon death. Make sure to consider these types of trusts when you decide to secure your family’s financial future.

Are you planning on getting a trust to protect your assets? We can help!

Contact us for more information about our services.

One of the biggest mistakes you can make when it comes to estate planning is to assume you do not need to plan.

Estate planning is all about deciding in advance and naming whom you want to receive your assets after your death.

Deciding early on how to distribute your assets will not only keep you in control of everything you’ve worked hard to achieve but also minimize squabbles among family members.

Estate planning is not only for the wealthy. It’s for everyone who wants to make sure their family and loved ones are adequately provided for, should the unthinkable happen.

Here are the five estate planning benefits you should know.

1. Peace for Everyone

You probably have heard horror stories of warring family members, where the war began soon after the death of a major pillar of the household.

Such situations arise when family members cannot reach a consensus as to who should be in charge of finances, real estate, and more. Such squabbles bring hatred among family members and are in most cases arbitrated in a court of law.

But where an estate plan exists, family squabbles are avoided.

Estate planning allows you to choose who should control finances and other assets after you die. This goes a long way towards settling any family disputes that may arise and also ensures your assets are handled the way you intended.

2. Avoiding Probate

When you die, your estate goes through a process that involves settlement and distribution of your assets in accordance with the terms of your will. This is known as probate and can be a lengthy and costly process.

The longer the probate process takes, the more costly it becomes, leaving your loved ones with less than you intended. This explains why most people try to avoid probate in any way possible.

Even with an estate plan in place, your beneficiaries will have to go through a type of probate to distribute those assets. However, not every probate is coordinated by the courts.

Some of the decedent’s property is not considered part of the estate, and therefore, not distributed through probate courts. These include trusts not established by a will, retirement accounts, insurance policies and jointly owned property.

The major ways your property can be settled outside probate courts include putting the property in a trust or by joint property ownership.

Avoiding probate coordinated by courts is one of the key estate planning benefits.

3. Transfer Property to Your Loved Ones Quickly

When you die without an estate plan, your family and loved ones could wait for months to get anything from you.

Estate planning helps to avoid the big delays that can put a financial strain on your loved ones.

With a good estate plan, your family gets all the resources they need to pay for outstanding medical bills, and for anything else that may come up.

4. Reducing Estate Taxes

Estate planning not only seeks to protect your loved ones from financial strain, but also from big tax hits.

By transferring your assets to your heirs, you also put your focus on creating the smallest tax burden for them as possible.

Even with the most basic planning, married couples can eliminate or reduce estate taxes by setting up revocable living trusts or ABC trusts as part of their wills.

Without an estate plan, the amount your heirs will owe the state could be considerably high.

5. Protecting Beneficiaries

One of the key reasons people prepare an estate plan is to ensure their beneficiaries are taken care of.

If the beneficiary is a minor, you’ll need to designate a guardian and a trustee in the will to oversee his or her wellbeing. Without such a plan, again the court will step in to determine who will raise your children.

If the beneficiary is an adult and is bad at managing finances, you can set up an estate plan that will protect them from making bad decisions.

Wrapping Up on Estate Planning Benefits

Without an estate plan in place, there could be a long-lasting impact on your family and loved ones. And not only for your loved ones but for you too.

Suppose you become incapacitated or suffer a stroke, who will pay your bills or manage your healthcare. A power of attorney designation and a well-drafted living trust package can help to protect you and your family.

If you have any questions on estate planning benefits or need help to update an existing plan, don’t hesitate to get in touch with us.