When people set up their living trust to safely pass down their property and assets to beneficiaries, they certainly do not want anything from their estate to go to plaintiffs in a lawsuit or creditors coming to collect debt. And they think that their living trust will keep their property safe from claimants. That is far from guaranteed, however. Some trusts may provide protections, but many will do nothing to shield your property from being tapped into by claimants. Keep reading to understand the limitations of a revocable living trust, and what actions you can take to ensure that your estate is safe.
One of the glorious benefits of the revocable living trust is that it will keep your property safe from a probate court, saving your family a great deal of stress, cost, and time. Creating a living trust is a common part of estate planning, because keeping your property out of probate is a big factor in your estate plan. Probate can last six months to a year, and in the process it can consume as much as five percent of your estate, an expensive slog through many complex legal issues.
But a living trust can come to the rescue even before probate becomes an issue. If you create a living trust, and you later suffer a medical crisis, coming down with a chronic condition or becoming incapacitated, then your living trust will have named a "successor trustee". This person can see to the assets in trust, safeguarding and supervising them when you are unable to do so.
As great as that is, the average revocable living trust has gaping hole in security that has to be addressed. What happens is that under the law, you are viewed as the owner of the trust's assets. In the typical revocable living trust, you set yourself up as the trustee, so that as long as you live, you get to manage the assets in trust. This enables you to remove property from the trust, sell it, or gift it without limitation. Plus the trust is revocable, meaning that if you so choose, you could take all the assets out of the trust. Also, if the trust assets make income, this income is taxable, and it goes under your personal income tax. What this all means is that the trust is not treated as a separate legal entity during your lifetime. So if you get sued, a claimant can go after your property, even if it is in a revocable living trust.
While a revocable living trust may limited, there are numerous resources that can help you get the protection you may need. For one thing, an irrevocable trust could grant this protection to your assets, with the tradeoff that you no longer retain the ability to manage those assets as you see fit. That would mean that you are no longer the owner of those assets in trust, but creditors cannot go after that property. There are other types of trust that could do the trick as well. Some wealthy individuals may even create a "family limited partnership", a limited liability company or other entity to protect their assets.
Other actions you could take include turning your money into assets that are exempt under your state's laws from being taken by creditors. There are even assets which are safe from bankruptcy, such as funds in a retirement account. There are even some states with laws that prohibit creditors from seizing your house. You could also get insurance. There are numerous options for shielding your property, as well as avoiding probate in the future. To learn more about successful estate planning and protecting property in your state, consult a probate lawyer on our directory today.