How Can Trusts Help in Asset Protection?
When creating an estate plan, one crucial consideration should be protecting your hard-earned assets from creditors. Several strategies are available, but Napa estate planning attorneys advise you to incorporate trusts into your plan. Trusts fall into various categories, and you can choose based on your needs and estate planning goals.
The most effective asset protection trusts are irrevocable, meaning any transfer of funds or assets you make into the trust is permanent. The trust owns the transferred assets, and a trustee is responsible for managing them, removing them from your ownership. You can no longer access the assets, so creditors would not lay a claim in a lawsuit.
Trusts can be advanced or standard, and the differences are key in helping you decide. Consult skilled advanced estate planning lawyers in Napa to guide you through the nuances of each type and how they can help you achieve your overall asset protection needs.
What is a Standard Trust?
Standard trusts are generally created by single individuals or married couples interested in real property, whether homes or land. They are also suitable for grantors with over $150,000 in assets but whose assets total less than the estate tax exemption amount. Napa estate planning attorneys often help people create standard trusts to avoid the probate court process.
A standard trust is also known as a living trust, revocable living trust, or Inter Vivos Trust. Once you create one, you retain ownership of the assets you transfer to the trust, meaning you can buy, sell, invest, borrow, or manage your assets in any way you deem appropriate, just like you did before creating the trust.
Standard trusts allow you to transfer the assets held therein to beneficiaries quickly and without costly expenses after your demise. Living trusts become irrevocable upon the grantor’s death. However, an advanced trust may be more appropriate if you have a complex family situation, such as children from a previous relationship.
What is an Advanced Trust?
While standard trusts focus on avoiding unnecessary delay and expense in distributing assets after a grantor’s death, an advanced trust provides more comprehensive estate planning opportunities.
Estate planning lawyers in Napa explain that advanced trusts come in many types to serve different purposes, which also highlight the differences between them and standard ones:
Preserve a Beneficiary’s Eligibility for Public Benefits
If a loved one receives needs-based public benefits, preservation of eligibility is crucial when making an estate plan. Specific strategic planning, such as rearranging and gifting assets, can be incorporated to preserve this eligibility.
If a recipient of public benefits becomes incapacitated and can’t make financial decisions, an advanced trust can include provisions that specifically authorize the successor trustee to plan strategically on behalf of the recipient. Most standard trusts lack such provisions, often requiring court intervention to allow for such planning.
Preserving eligibility for public benefits entails ensuring the recipient’s assets are always below a certain threshold. A direct inheritance can instantly jeopardize eligibility. When you create an advanced trust, you can incorporate a “standby Special Needs Trust” to hold the inheritance without interfering with the needs-based public benefits.
Protect Assets to a Certain Degree
Standard trusts often have provisions for “outright distributions” after the grantor’s death as long as the beneficiaries are responsible adults. However, these provisions may not protect the beneficiaries if they run into problems with creditors in the future, such as receiving a healthcare bill that exceeds their insurance coverage.
On the other hand, an advanced trust can help you structure the inheritance so that it remains in the trust for the beneficiary’s lifetime. You can also provide them with firm control and asset protection. Skilled Napa advanced estate planning lawyers can guide you through the nuances of ensuring you achieve these objectives.
Protection During Divorce
Inheritance is often treated as separate property. However, when a beneficiary receives an inheritance, they may combine it with their spouse’s assets. They could lose half of their inheritance to their ex-spouse in a divorce.
With an advanced trust, you can provide for the inheritance to be held in the trust during the beneficiary’s lifetime, making it less likely to be commingled. Therefore, it will remain as separate property and not be subject to division.
Flexibility Without Court Intervention
Under standard trusts, only the grantor can modify the terms. In the event of death or incapacitation, the terms are frozen, which can be desirable if substantive provisions exist on how the trust should be distributed after the grantor’s demise.
However, given the ever-changing laws and circumstances, these trusts can be problematic regarding tax and administrative provisions. The terms can’t be modified if the grantor becomes incapacitated, requiring the court’s intervention to keep the trust current.
Advanced estate planning lawyers in Napa say that on the contrary, an advanced trust can have “trust protector” provisions. These allow for appointing an independent third party with limited authority to modify the terms. They can handle changing tax and administrative provisions without court involvement, saving time and money.
A Skilled Estate Planning Attorney Providing Legal Counsel on Standard and Advanced Trusts
Trusts can be practical estate planning tools for efficient management and asset protection in the event of incapacitation or death. However, most standard trusts only provide a limited number of planning opportunities. Advanced trusts can offer more flexibility and protection for you and your beneficiaries. Consult skilled Napa advanced estate planning lawyers for more insights.
Celaya Law is a reputable estate planning firm in California. Our dedicated lawyers can help you keep your wealth within your family by utilizing practical estate planning tools, such as advanced trusts. Call us at 707-754-0977 to schedule a consultation.