When people think of trusts, the first thing that often comes to mind is probate avoidance. While it’s true that trusts are commonly used for that purpose, they can also be an excellent tool for protecting your assets from creditors and lawsuits.
In fact, many people are surprised to learn that trusts can provide significant asset protection benefits that go far beyond avoiding probate.
If you’re concerned about protecting your hard-earned assets from potential creditors or lawsuits, setting up a trust can be a smart move. At Cary Estate Planning, we understand the importance of safeguarding your wealth and can help you create a trust that meets your unique needs.
Contact Cary Estate Planning today to learn more about how a trust can provide asset protection for your family’s future. Our experienced estate planning attorneys will guide you through the process and ensure that your assets are well-protected.
Without a proper estate plan in place, your minor children may be entitled to inherit your assets as soon as they turn 18 under the Uniform Transfers to Minors Act. Consider how much money they would receive if something were to happen to you suddenly. How would they manage that money, and would they use it responsibly?
It’s important to understand that large sums of money can have negative consequences on a young person’s life. They may inhibit personal growth, lead to unhealthy habits, or encourage self-isolation. This is often referred to as the “found money” problem seen with lottery winners who spend their winnings recklessly.
It’s crucial to structure your estate plan in a way that benefits your minor children when they are ready to receive their inheritance. This often involves setting up a trust that distributes the inheritance in stages, beginning in the mid-to-late 20s and continuing into the 30s. By delaying the age at which your children can receive their inheritance, you increase the likelihood that they will use the funds in a mature and responsible way.
Once you pass away, your trust will likely become irrevocable, unless it’s structured to become irrevocable after the surviving spouse’s death in the case of a joint trust for a married couple.
This legal distinction is essential because it means that irrevocable trusts cannot be altered or manipulated, and beneficiaries cannot force the trustee to make a distribution unless the trust requires it.
The benefits of an irrevocable trust extend beyond just avoiding the probate process. If your child faces any future financial or legal issues, such as unpaid debts or personal injury, the trust’s assets will be protected from potential creditors. Additionally, if someone attempts to exert undue influence over your child, such as a future spouse or a manipulative friend, the assets held in trust will be safeguarded against such influence.
However, it’s crucial to note that once the assets are distributed, the creditor and predator protection ends. Therefore, it’s best to lose this protection at a later age, such as 35, rather than 18, when the child may not have the necessary maturity and financial responsibility to handle the assets.
Trusts can be an effective tool for minimizing estate taxes. When you pass away, your assets may be subject to federal and state estate taxes, which can significantly reduce the amount of your estate that is passed down to your beneficiaries.
However, by setting up a trust, you can potentially reduce or eliminate your estate tax liability. One common type of trust used for estate tax planning is a revocable living trust. When you transfer assets into a revocable living trust, you retain control over those assets during your lifetime, but they are no longer considered part of your taxable estate.
Another option is an irrevocable trust, which permanently removes assets from your estate and provides additional tax benefits. For example, an irrevocable life insurance trust can be used to remove life insurance proceeds from your estate and avoid estate taxes.
It’s important to note that there is no “one-size-fits-all” solution when it comes to estate planning. Every family’s situation is unique, and a plan that works well for one family may not be suitable for another. Therefore, it’s essential to evaluate your entire family and financial situation before deciding on a type of trust for your estate plan.
For example, if your children are already of age and demonstrate sufficient maturity and financial responsibility, they may be able to handle receiving your assets outright without the need for a trust. In this case, the creditor protection utility of a trust would be less useful.
On the other hand, if your children are still minors or may not be financially responsible, setting up a trust can provide valuable protection for your assets. It’s also worth considering whether there are any family dynamics or potential issues that could impact the distribution of your assets, such as a blended family or children with special needs.
At Cary Estate Planning, we understand the importance of creating a personalized estate plan that takes into account your unique circumstances and goals. We offer a range of estate planning services, including trusts, wills, and powers of attorney, and we can help you determine the best approach for your family’s needs.
If you want to learn more about trusts and how they can benefit your estate plan, contact a Cary trusts lawyer today. At Cary Estate Planning, our experienced attorneys can guide you through the process of creating a trust that meets your unique needs and provides protection for your assets.
Whether you’re interested in setting up a revocable living trust to avoid probate or an irrevocable trust to provide creditor protection for your beneficiaries, we can help. We offer a range of estate planning services, including wills, powers of attorney, and trusts, and we can work with you to develop a comprehensive estate plan that ensures your family’s financial security.
Contact us today to schedule a free consultation with our trusts attorneys and start securing your family’s future.