Asset protection is a source of concern for some, and it comes in different forms. A lot of people assume that a trust will protect assets because you surrender personal control of assets in a trust. The idea is that the trust is the owner of the resources, so they are protected.
Is this an absolute truth? We will examine the question in this post.
Irrevocable Trusts
A key piece of information here is the fact that trusts are broken up into two distinguishing classes: irrevocable trusts, and revocable trusts. If you establish an irrevocable trust, generally speaking, it cannot be changed or dissolved after it has been created (though there are some exceptions).
The person that creates a trust is called the grantor. When you are the grantor of an irrevocable trust, you are surrendering incidents of ownership in a legal context. This means that you no longer own the assets in the trust. As a result, the assets may be protected.
There are particular types of irrevocable trusts, and one of them is the self-settled asset protection trust. This is an irrevocable trust that will protect assets from future creditors under most circumstances.
These trusts are also used to protect assets from potentially devastating nursing home costs. Medicare does not pay for living assistance, but Medicaid will cover the expenses if you can gain eligibility.
Since it is a need-based program, you cannot qualify if you have significant assets in your name. As a response, you could convey resources into an income only, irrevocable trust.
You could receive income that is generated by the assets until you apply for Medicaid. The principal would not count when your net worth is being calculated, but advance planning is key. There is a five-year look back period, so you have to fund the trust at least five years before you apply for Medicaid. An exception to this is called Community Medicaid which, once you qualify, will provide care in your home. For this type of Medicaid there is no look back period. Again. advanced planning is key.
Irrevocable trusts are used by people that are exposed to estate taxes as well. The assets are removed from your estate for tax purposes, and the trusts facilitate tax efficient transfers.
Revocable Living Trust
A revocable living trust is an estate planning tool that is ideal for a wide range of people. It is preferable to a simple will in a number of different ways, but we will not look at all of them here.
From an asset protection perspective, you would act as the trustee while you are living. This would give you absolute control of the assets on every level. As a result, the resources in the trust would not be protected if you are sued for some reason.
However, this arrangement changes after you pass away. The trust will become irrevocable, and the beneficiaries would have no access to the principal. Their creditors would “step into their shoes,” which means that they would be in the same position, and the assets would be protected.
You can also protect the beneficiaries from themselves if you feel as though this is necessary. When you are drawing up the trust declaration, you leave instructions for the trustee regarding the nature of the distributions. If you want to provide limited monthly payouts over an extended period of time, or dictate some other arrangement, you are free to do so.
Take Action Today!
There are a lot of things to think about when you are planning your estate. As a layperson, there is no reason why you would understand all of your options. This is where we can enter the picture to provide the appropriate legal counsel.
Each situation is different, and the ideal way to proceed will depend on the circumstances. When you work with our firm, we will provide personalized attention. At the end of the process, your plan will be ideally constructed so you can go forward with peace of mind.
If you are ready to get started, you can schedule a consultation at our Manhattan, NY estate planning office if you call us at 212-973-0100. We also have a contact form on this site you can use to send us a message.
While he was in law school, he worked as an aide to the late John Sparkman, Senior Senator from Alabama. This gave him the opportunity to gain intimate knowledge of the workings of government, and this background has served him well.
He started his private practice in New York in 1974, the first Sikh to be admitted to the bar in the state of New York.And in 1995, when he narrowed his legal focus to the areas of estate planning and elder law, the prestigious American Academy of Estate Planning Attorneys accepted him into their membership.
Special needs planning is an important aspect of the field, and Mr. Khalsa has intertwined his empathy with his expertise to become a leading advocate in this area. Shortly after the Education for All Handicapped Children Act was enacted in 1975, he won the first case in New York that was adjudicated under this law.
S.J. Khalsa has a penchant for philanthropy, and he has raised well over $20 million for charities nationwide. He is a deeply spiritual man who represents the Sikh religion at religious and interfaith gatherings all over the globe.
He believes that successful professionals should contribute to the fabric of their communities, and to this end, he works with law enforcement in New York.
Mr. Khalsa is a graduate of the FBI Citizens Academy program, and he is active in their Alumni Association. He is a member of the FBI/New York Police Department Joint Task Forces on Civil Rights and Hate Crimes, and he sits on the Community Engagement Council that advises the FBI Assistant Director for New York.
He is the author of the highly acclaimed book, Estate Planning Essentials: A Guidebook for Modern Families. Lawyers of Distinction recognized him for his excellence in 2020, naming him a 2020 Power Lawyer, and he is a member of the prestigious American Academy of Estate Planning Attorneys.
Mr. Khalsa lives in Manhattan with his wife, and he has two grown children and four grandchildren. He likes to travel, and he is an avid golfer. As the co-owner of Kundalini Yoga East in New York along with his wife, he instructs practitioners and aspiring yoga teachers.
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