Asset Protection Trusts: Safeguarding Your Legacy
When it comes to estate planning, harnessing the power of trusts can be a game-changer in securing your assets for the benefit of your family. Many individuals choose the path of placing their assets within an irrevocable trust, a strategic move designed to shield their wealth from the potential financial strain of assisted living or long term care expenses.
Additionally, this formidable tool serves as a protective barrier against future creditors who may seek a claim on trust beneficiaries' assets. Is this the right choice for your family? Discover the potential of this robust estate planning tool and explore answers to frequently asked questions about long-term care planning. Why Opt for an Irrevocable Trust in Asset ProtectionIn your estate planning journey, various trust options abound, each tailored to different objectives. A "revocable" trust allows flexibility, permitting changes and eliminations in the future. However, when it comes to asset protection, the irrevocable trust is paramount.
An irrevocable trust, once established, cannot be modified or revoked. This is crucial for asset protection because retaining the power to reclaim assets can negate the legal transfer. How an Asset Protection Trust OperatesAssets entrusted to a trust are legally owned by the trustee, with the trust document outlining their use and distribution. To ensure full asset protection, the trustee must lack the authority to distribute the core assets to you, as this would render them available to you under the law.
However, income generated by these assets, such as rental income or dividends from investments, can be directed to you. The assets themselves, though, are reserved for distribution to beneficiaries per your trust instructions upon your passing. Choosing the Right Time for an Asset Protection TrustIf your objective is safeguarding assets from the financial burden of assisted living or long-term care, it's essential to consider the Medicaid and MassHealth "look back" period, which spans five years. Any assets transferred into a trust less than five years before applying for Medicaid will still be considered available to you.
Starting the process too late might jeopardize your asset protection goals. Conversely, initiating it too early may not be suitable, especially if you have substantial financial obligations. For optimal timing, individuals often contemplate this type of trust in their sixties or early seventies, depending on their health. |
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Choosing Asset Protection Trusts for Creditor Protection
If your aim is to shield assets from potential creditors, whether yours or your beneficiaries', consult with your estate planning attorney to determine the best timing for creating an irrevocable trust. It can protect assets from future creditors, including spouses, at any point during your planning. To safeguard assets from your own creditors, it's crucial to ensure the transfer complies with state law and isn't deemed fraudulent, especially if you have existing judgments or significant debts.
Selecting Assets for Trust Placement
Given the irrevocable nature of this trust, careful consideration is crucial when choosing assets to protect. Even if your children are financially independent, having liquid assets at your disposal remains essential.
For those with real estate and cash or investments, placing real property within the trust while retaining access to more liquid assets can be a wise strategy, particularly if your real estate generates income.
Maintaining some assets outside the trust also grants flexibility in choosing long-term care facilities, as not all accept Medicaid patients. Having liquid funds available initially allows you to explore a wider range of options to best meet your needs.
For those with real estate and cash or investments, placing real property within the trust while retaining access to more liquid assets can be a wise strategy, particularly if your real estate generates income.
Maintaining some assets outside the trust also grants flexibility in choosing long-term care facilities, as not all accept Medicaid patients. Having liquid funds available initially allows you to explore a wider range of options to best meet your needs.
Asset Protection Strategies Without Trusts: The Gifting Approach
An alternative asset protection strategy involves gifting. Federal tax law permits tax-free gifting of up to $17,000 per person annually. This means you can gift a substantial total per year tax-free to your children, their spouses, and grandchildren. These gifts can take the form of cash, stocks, bonds, fractional interests in a business, or real estate.
While this strategy offers asset protection and minimizes estate tax liability, be mindful of the MassHealth five-year look-back rule. Gifts made within five years before applying for benefits may still be considered available assets. As with irrevocable trusts, timing is key when implementing this gifting strategy.
While this strategy offers asset protection and minimizes estate tax liability, be mindful of the MassHealth five-year look-back rule. Gifts made within five years before applying for benefits may still be considered available assets. As with irrevocable trusts, timing is key when implementing this gifting strategy.
Meet Our Estate Planning Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna wrote a book on estate planning: The Road to Peace of Mind: What You Need to Know About Estate Planning. Jenna has helped many individuals and families with planning to protect their legacies and loved ones, and planning for the future and succession of their businesses.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and earned her LLM in estate planning from Western New England Scool of Law in 2016. She has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped many clients with planning for their legacies and their future, and navigating the probate process in Massachusetts after the death of a loved one.
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