Can revocable living trusts protect my assets?
Estate planning is not just about deciding how to distribute your estate assets when you are gone. On the contrary, a well thought out estate plan focuses as much on growing and protecting those assets while you are alive as it does on what happens to them when you are gone. The rationale is simple. If you fail to protect and grow your assets throughout the course of your lifetime there won’t be any assets left to pass down after you are gone. With that in mind, asset protection tools and strategies should be incorporated into your estate plan as early on in your life as possible. If you are new to the concept of asset protection, you may be wondering what tools and strategies are best for protecting your assets. For example, can revocable living trusts protect your assets or are there better options available?
Your Assets Are Likely at More Risk Than You Realize
One of the biggest risks to your assets may be you. How can you be your biggest risk? By not fully understanding and recognizing all of the actual risks your assets face. For example, consider all of the following potential risks to your assets:
- Divorce –your own divorce will certainly put your assets at risk; however, have you also considered how the divorce of a child, or other beneficiary, could impact your hard-earned assets? If you gift your estate to a child when you are gone, and that child co-mingles his/her inheritance, your gift could be lost to your child’s spouse in a divorce the same way assets can be lost in your own divorce.
- Economy – the reality is that the economy can be a threat to anyone’s assets because it is unpredictable and volatile. A downturn or recession can put all your assets at risk.
- Business failure – if you own a small business and you incorporated the business, you may be under the impression that you have protected yourself from any personal liability for the debts or errors of the company; however, you could be wrong. Simply creating a corporation is not always sufficient to protect yourself from personal liability.
- Beneficiaries – your own beneficiaries could be the biggest threat to your hard-earned assets. Once a direct gift is made to a beneficiary, there is nothing anyone can do about how the beneficiary spends those funds or handles those assets. A beneficiary could lose everything as a result of a drug or gambling problem or simply because he or she is bad with money.
- Spouse – even if you and your spouse remain happily married, your spouse could still be a threat to your assets because you can be held legally liable for your spouse’s debts. At the same time, if you leave everything to your spouse, and your spouse doesn’t protect those assets after you are gone, everything you did while you were alive to protect those assets will be for nothing.
Can Revocable Living Trusts Protect Your Assets?
The simple answer is “no.” Here’s why. A living trust can be either revocable or irrevocable. As the names imply, a revocable trust is one that can be modified or revoked by the Settlor (the creator of the trust) at any time and for any reason whereas an irrevocable trust cannot be modified or revoked by the Settlor. That means that assets can be freely transferred in and out of a revocable living trust but not an irrevocable living trust. As such, the law treats assets in an irrevocable living trust as trust property that is out of the reach of creditors. Conversely, assets in a revocable living trust are still accessible to the Settlor and, therefore, to creditors of the Settlor as well. If asset protection is the goal, therefore, an irrevocable living trust is the way to go. For more details on how an irrevocable living trust works and how one might fit into your estate plan, consult with your Illinois estate planning attorney.
If you have questions or concerns regarding asset protection, revocable living trusts or irrevocable living trusts, contact the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.