Although business owners and those who own commercial property are usually most concerned about asset protection, the truth is you don’t have to own special property to want to protect your assets. There may be potential legal claims in the future you have to defend against. If you don’t want to run the risk of losing everything you own as a result of an unexpected situation, you need asset protection. One good thing to know is what type of trust protects assets.
Understanding the primary goal of asset protection
Constructing an asset protection plan requires a careful analysis of your assets and reorganization of those assets so that you can provide maximum protection against risk or loss. A common misunderstanding that clients have is that asset protection involves some type of fraud or “hiding” of property. This is certainly not the case. When done appropriately and within the requirements of the law, asset protection is completely legal. You can be prepared for nearly any unforeseen situation that would otherwise put your property at risk. With the help of our trust attorneys, you can accomplish this without engaging in any type of fraud or tax evasion.
What type of trust protects assets?
The term “irrevocable” means that the terms of the trust cannot be changed or revoked once it has been created. Protection from creditors can be achieved with various types of trusts, but the most effective type of trusts for asset protection is an irrevocable trust. When you transfer your property to a trust of any kind, that property now belongs to the trust. Since the trust cannot be revoked or modified, the assets are no longer considered your property. As a result, the property in the trust becomes unavailable to your creditors and out of reach of any legal judgments.
There is a big difference between revocable and irrevocable trusts
Revocable trusts become effective during your lifetime and give you complete control to manage the trust and the trust property. A revocable trust is the reverse of an irrevocable trust, in that it can be changed or revoked at any time while you are still alive. Upon your death, the trust property is transferred to your named beneficiaries. In order to provide protection, Kansas City asset protection trusts must likely be irrevocable.
Be sure to include the right terms to ensure asset protection
In order to guarantee that your property will truly be protected, there are specific terms you need to include in your trust agreement. For instance, any interests that you leave to your beneficiaries must either be dependent on a future occurrence or subject to the trustee’s sole discretion. As our trust attorneys can explain, one useful provision is known as a “spendthrift” provision. Spendthrift trusts are created for the benefit of clients who are essentially unable to manage their finances or control their spending.
Trust property must remain part of the trust
It may seem obvious, but it is important to understand that in order for the property to remain protected it must remain in the Kansas City asset protection trusts. In other words, simply transferring your property to a trust does not provide asset protection. If you ever remove the property from the trust it will no longer fall under the trust’s protection. Once it has been removed, the property will become subject to creditor’s claims once again.
What type of trust protects assets? Not revocable trusts!
A revocable trust cannot provide asset protection because you are still considered the owner of the property in the trust. With a revocable living trust, you are named as the trustee, so you will still maintain control over the trust assets while you are still alive. Since the property is basically yours, it will still be subject to the claims of your creditors. Also, all of the income generated by your trust property belongs to you. These characteristics mean that a revocable trust may not be the right choice for protecting assets.
Start asset protection planning as soon as you can
If you want your asset protection plan to be as effective as possible, you need to establish your plan long before creditor’s make their claims and legal judgments have been obtained. Otherwise, your efforts to move your assets into a trust will probably appear to be fraudulent. In other words, if you transfer your assets after a lawsuit has been filed against you or a creditor has made a legal claim, a court may be considered that subsequent transfer to be fraudulent.
Join us for a free workshop today! If you have questions regarding Kansas City asset protection trusts or any other estate planning matters, please contact the experienced attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!