Asset Protection Trusts: Safeguarding Your Legacy
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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. |
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Choosing the Right Time for an Asset Protection Trust
If 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.
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.
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.
How Our Estate Planning Lawyers Can Help
We are ready to help you put a comprehensive plan in place that meets all of your needs and your family's needs. We also know how hard it can be to get started, and do our best to make this process as easy as possible for you. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
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Jenna Ordway
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