An irrevocable trust that has been properly established offers several benefits. Unfortunately, not all trusts are created equal. This site and its information is not legal advice, nor is it intended to be. An irrevocable trust is a trust that cannot be changed or amended without court permission, and sets up a legal wall of separation between a person and the person’s assets. The asset protection mechanism of an irrevocable trust is a function of control. Here are five reasons to tread carefully when considering transferring assets to an irrevocable trust for long-term care protection purposes. Thank you. Asset Protection With an LLC. Irrevocable trusts accomplish this for you if you have a current need, or revocable trusts can create this for future beneficiaries. Broomfield, CO 80021, Is it better to have a will or a trust? But to the extent that it is not all encompassing, the common law remains. Because of this protection against inside and outside liability, LLCs are best suited to protect assets that could potential be the source of a lawsuit. In contrast, if you are looking to protect an asset like a family vacation home, establishing an irrevocable trust may make more sense to help ensure the home remains in the family for future generations. This depends on the distinction between principal and income. The trick is to turn your countable assets into non-countable assets. We have these types of conversations all the time, as we have a basic understanding and how to work together. Fortunately, a Grantor can retain the right to income, and creditors will still be unable to reach the underlying assets. Since the trust is a separate legal entity the … 11990 Grant Street, Suite 550 While irrevocable trusts do not allow grantors as much flexibility as with revocable trusts, they generally are more secure when it comes to asset protection. Firstly, there is the fact that the assets in the trust are not legally owned by the grantor. Any such transfer is considered a fraudulent transfer, and can be easily undone by someone looking to collect on a judgment. For example, if you own a small business inside of an LLC, and you hit someone with your car, they can sue you, but they won’t be able to take your business away if they win. When a Grantor puts assets into a trust, they are no longer the owner. Passing control to a trustee. An asset protection trust is irrevocable, meaning that any transfer of assets into the trust is permanent. Irrevocable vs Revocable Trust Differences on the Protection of Assets. So long as the event creating the liability occurs within the LLC, a judgment creditor will be unable to reach the personal (non-LLC) assets of the owner. If I am the Grantor (person making and funding the trust), and not the trustee, may I still direct the investments of the assets? The person may be receiving assistance from some sort of government program, and the program may have asset limits. Let’s take a look. There are time frames and waiting periods involved in qualifying for these programs, as well, which are discussed in this blog post about advance Medicaid planning. Broomfield, Colorado 80021, Cherry Creek An irrevocable trust would protect 100% of all of the assets.The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Limited Liability Companies are creatures of statutory law. The question becomes, what type of trust is best for you? The primary assets owned by the trust are the principal, but the income that they generate is the income. In all of my conversations with this financial planner over the years, we had never discussed what type of asset protection could be provided by a revocable trust. Under certain conditions, the trust can be designed to be a pass-trough trust for income taxes. Also to protect whomever out lives the other (husband or wife) so that they do not have to fight with any of the children and or anyone else for any assets left behind. If you are looking to protect assets from potential future creditors, then you will need to set up an Irrevocable Trust. In other words, the trust would own the assets in question and they would be managed by the trustee. We live in an economically volatile and litigious society. Once the vacation property is placed in the trust, you can stipulate that the home cannot be sold for a specific period of time or not sold at all. The settlor provides the trustee with rules for operating the trust in a written trust agreement or similarly titled document. Fort Collins, Colorado 80528, Greenwood Village An irrevocable Medicaid trust may be used to help protect assets from liquidation when the need for an extended nursing home stay arises. 1079 S. Hover Street, Suite 200 When it comes down to brass tax, the biggest difference between these two types of estate planning trusts is the fact that assets in a revocable living trust are not protected from a Medicaid spend-down for long term care, while assets in the properly crafted irrevocable asset protection trust are protected. There are two defining features of an Offshore Asset Protection Trust structure which makes it so effective as an asset protection tool. A trust is an agreement allowing property to be held by one party for the benefit of another. Another difference between these two trusts is that a revocable trust only lasts as long … With an irrevocable trust, the property is moved outside of the grantor’s estate and placed under the care of a third party. I would think my son will only get the money after I die and I will give him money from my personal funds while I am alive. View our Privacy Policy, Aurora The Law Office of David E. Peterson, P.C. Colorado Springs, CO 80919, Denver So, what are the differences between a revocable and an irrevocable trust? An irrevocable trust is one you cannot alter or eliminate after you create it. Website created just for Michael Bailey Law, LLC by Personable Media There is also the option of establishing a qualified … Looking into a trust for protection from my ex and to ensure any future judgements that may be against me will not affect my current wife and our assets. Greenwood Village, Colorado 80111, Golden Specifically, they are great for holding investment real estate and operating businesses. The terms of the trust typically designate beneficiaries, who are the beneficial owners of the trust. 355 S. Teller Street, Suite 200 Golden, Colorado 80401, Lakewood Until recently LLCs have been creatures of common law. It does not provide asset protection or help to avoid estate taxes. An irrevocable trust, on the other hand, is one where someone else, a designated trustee, takes the reins. The Ultra Trust Irrevocable Trust offers a more customized and complete solution than the QPRT. A domestic asset protection trust can be established within the U.S. in any of the states that provide legislation permitting the creation of such trusts. According to Massachusetts estate planning attorneys, two of the most common and effective asset protection mechanisms are the Limited Liability Company (LLC) and the Irrevocable Trust. For these reasons, irrevocable trusts work well for income generating property, or primary residences for older clients. 4 W. Dry Creek, Suite 100 Or, if you want to get really savvy, you could have a trust own an LLC, or an LLC serve as trustee of a trust, or both! Asset protection deals with concerns, like “ fraudulent conveyance ,” “probate,” “estate taxes” and “ Medicaid nursing home reimbursement .”. 6105 S. Main Street, Suite 200 Medicaid will see this kind of trust as a countable asset. I let him know that a revocable trust would not provide current asset protection for the person creating the trust, and he wanted to know, “What was the point of doing asset protection in a revocable trust?”  I explained that the heirs in a revocable trust could be provided asset protection for their future interest in the trust assets, but an irrevocable trust would be necessary to provide current asset protection for the person creating the trust. This works in the same way that an irrevocable trust can be used to … The primary purpose of an irrevocable trust is … As mentioned above, Michigan considers a home in a trust, even if it is irrevocable, a countable asset. Instead, the Trustee becomes the legal owner, and he or she must manage the assets according to the terms of the trust. Some people look to trusts as a way to accomplish this goal. Then they could reallocate into income generating property once the asset protection threat has passed. You cannot touch the assets or amend provisions for the trust in any way. Your email address will not be published. Question: I created an Irrevocable Medicaid Asset Protection Trust. Shares of stock are principal, but dividends are income. 9233 Park Meadows Drive For example, if you own a vacation home in an LLC, and someone is injured on the premises, then their recovery on the lawsuit would be limited to the assets of the LLC. Thank you. And the assets within this type of trust are no longer owned by the grantor, but by the trust itself. Michael Bailey has practiced in the Denver, Colorado area since he became a licensed attorney specializing in estate planning, and tax law as it relates to estate planning. The asset protection benefit of irrevocable trusts comes mainly from the separation of the grantor from his or her assets. 11001 West 120th Ave, Suite 400 Serving estate plan needs in-person (w/ proper social distancing) and Zoom, A couple of weeks ago, I had a conversation with a financial planner who has referred business to me for several years. Transferring assets into a revocable trust will not be a fraudulent transfer, but also does not provide immediate asset protection for the person who creates the trust. Answer: Appropriately named, a Medicaid Asset Protection Trust (“MAPT”) is a trust created to shield assets from Medicaid in order to preserve them for your family and generations to come. Revocable Trust vs. Irrevocable Trust: An Overview . By keeping the assets in trust, the person with special needs will not have the assets counted against them and the assets are protected. domestic asset protection trusts.5 Although many estate planners think that “asset protection” planning is distinct from “traditional” trust and estate planning, limited liability has always been a fundamental part of our legal system and a core estate-planning concept. Therefore, asset protection planning is of the utmost importance. While asset protection trusts must be irrevocable to safeguard the trust property, they do offer a great deal of flexibility and protection for your clients when it comes to protecting their own property and property that is inherited by their loved ones. Irrevocable Trusts Provide Current Asset Protection, but Have Trade-offs. DOES NOT eliminate estate taxes; ABSOLUTELY NO asset protection. That means that they’ve evolved through the decisions of courts in England and the United States over several hundred years. So, the revocable trust provides asset protection when it also becomes irrevocable. You need to understand the difference between a revocable and an irrevocable trust. Ironically, it is in giving up ownership of their assets that grantors are able to protect them the best. For example, as long as you transfer assets into an irrevocable trust before MassHealth’s five-year look-back period, you will be eligible for MassHealth. When are Kids Old Enough to Handle an Inheritance? By the time a revocable trust is protecting assets for the future, final beneficiaries, the person who created the trust has likely passed away, and the trust has become irrevocable, so the trust is now a separate legal entity from the beneficiary and assets are protected. Only Frankenstein is not a mad scientist, he’s your state’s legislature. Whether your looking for some simple protection, or you want to create a veritable lasagna (multiple layers, get it?) Contacting us does not create an attorney-client relationship. Denver, Colorado 80202, Denver Metro North/Northglenn If they could, so could their creditors. The Revocable Trust is nothing more than an extension of your will. Furthermore, if the LLC owner is sued due to an event occurring outside of the LLC, then the judgment creditor cannot seize the LLC. He responded, “I thought when you put assets in a trust, then the assets are shielded from creditors and from someone trying to collect a judgment because the trust has a different name than the individual.”  We briefly discussed how a different name would only provide protection from the most surface of inquiries, and that any creditor seeking to enforce a judgment would easily find the assets in a revocable trust. Further, with a QTIP Trust, the surviving spouse could have up to 15 months after the deceased spouse’s death to decide on whether or not to make a partial QTIP election and/or claim portability, while a disclaimer must be made within … blog post about advance Medicaid planning, 11001 W. 120th Ave. Suite 400 For example, the Massachusetts Uniform Trust Code creates a framework for trust law in the Bay State. While an irrevocable trust can be a powerful asset protection tool, there are a lot of client-specific priorities and circumstances to balance when assessing whether it’s a smart approach. When this strategy works, a loved one’s admission to a long-term care facility doesn't require a substantial spend-down of investments, meaning wealth can be preserved and transferred to the next generation. This makes irrevocable trusts an incredible solution for anyone who is concerned … When you create an Asset Protection Trust, you transfer your assets into the Trust and give up control and access to the trust assets. That means if you are sued for somebody slipping on your pool deck, they aren’t going to be able to take whatever you placed in your trust. They couldn’t recover against your bank account, or primary residence, because they’re outside of the LLC. This questions is best answered one on one, instead of in a public forum like this blog post. Please contact me directly at the phone number on the website, and we can discuss the answers to your questions. Recent Court Decision Highlights Dangers in Medicaid…, Credit Shelter Trusts – The Single Best Method…. Think of them as Frankenstein’s Monster, patched together with elements of corporate, partnership, and tax law. Sometimes the Grantor can also serve as the Trustee. The trustee is not required to distribute any assets to you, even for the purposes of health care. … There are several considerations to consider, and I would want to know more about your goals and objectives in making the trust to be able to fully answer your question. Even when you transfer an asset to a trusted family member, they can run the risk of losing the asset or spending it for their own behalf. When you transfer an asset, you basically give it away. is a boutique trusts and estates firm serving the North Shore and Greater Boston communities. Louisville, Colorado 80027, Lone Tree 7222 Commerce Center Drive, Suite 220 2. When to Begin the Prenup Process in Massachusetts? If you want to discuss your trust and what you may need, you can make an appointment by clicking here. Now however, states often supplement trust law with statutory schemes. Asset Protection in an Irrevocable Trust In order to properly protect your assets, you need an irrevocable trust. An irrevocable trust, like an asset protection trust, offers an advantage in protection at the cost of giving up control of those assets. Everybody’s goals and objectives are different and unique. of LLCs and trusts, the first step is to seek the advice of an attorney that specializes in this type of planning. We help you develop financial strategies that will protect your estate from debtors and legal challenges. In this scenario, the Trustee could reallocate the principal into assets designed to appreciate in value, rather than generate income. Since the trust is a separate legal entity the person who created the trust no longer owns the asset and the asset cannot be reached by the creditors of that person. Provides protection from lawsuits. As we were chatting, I turned to my friend and asked, “What do you mean by asset protection in a revocable trust?”. A trust is a legal entity in which one person is named a trustee. The Dusty Binder: When Good Estate Plans Go Bad, Massachusetts Appeals Court Weakens Trust Protections in Divorce (Prenups are now more important than ever). Charitable Remainder Trust This type of trust is a tax-exempt irrevocable trust designed to reduce taxable income. Revocable vs. Irrevocable Trusts . 1624 Market Street, Suite 202 For this reason only irrevocable trusts provide asset protection. 14143 Denver West Parkway, Suite 100 That is, they cannot scoop the funds out of the trust arbitrarily. 4845 Pearl East Circle, Suite 101 Boulder, Colorado 80301, Broomfield Lakewood, Colorado 80226, Littleton All rights reserved © 2020 | The Law Office of David E. Peterson, P.C. , asset protection can shield you from legal actions with long-term estate planning, estate taxes what the... Fact that the assets in question and they would be managed by the trust can reserve certain rights to terms! 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