If you’ve been considering forming a living trust for your assets, there are many reasons why this decision might benefit you and your family. Not only does a living trust ensure that your assets are distributed according to your final wishes, it also allows your family and beneficiaries quicker access to those assets since there is no probate process required with a living trust. A living trust can go a long way when protecting your assets, but it doesn’t necessarily protect your assets from creditors.
When Are Assets Not Protected By a Trust?
Many people ask their Memphis estate planning lawyer if creating a will is sufficient for distributing their assets. While a will can serve as a strong backup document, many estate planning lawyers still recommend creating a living trust, too. The primary reason for this is that a will still requires beneficiaries to go through probate court.
Although a revocable living trust can ensure that your assets are distributed properly upon your passing, it does not necessarily protect your assets in all situations. Firstly, a living trust won’t have any effect on estate taxes, both on the state and federal levels. If your estate is large enough to be subject to estate taxes, putting your assets into a living trust will not change this. Furthermore, any assets in the trust that generate income during your lifetime will be included in your income tax requirements.
Secondly, living trusts won’t protect your assets from creditors who are looking to collect outstanding debts. This is because a living trust doesn’t offer protection against any parties that press legal claims against you. If a creditor is trying to collect outstanding debts from you, they may be able to take assets in your trust. A living trust is not a public document but a judge will be able to see that you have one if a creditor takes legal action against you.
Lastly, assets in a trust aren’t exempt from court-ordered payments, such as child support or alimony. If you’ve been ordered to make these payments, the judge will have considered all of your assets, regardless of whether or not they are in a trust.
Self-Settled Trusts and Financial Protection
Besides helping your family avoid probate court, there are some additional financial reasons why you might consider creating a living trust. A self-settled trust is one type of trust that legally transfers ownership of your assets to another party. Because you would technically no longer own your assets, certain parties might not have access to these assets. For example, if you own and operate a business, it may be wise to create a self-settled trust to separate your assets. This is especially important if you have a high-risk profession where you run the risk of encountering a personal injury lawsuit. Personal injury lawyers are skilled at examining all possible avenues for financial recompense, and this includes looking into assets in trusts.
If you have any concerns about how a trust might impact your finances, it’s recommended that you speak with a living trust lawyer for more information.
Thanks to our friends and contributors from Wiseman Bray PLLC for their insight into estate planning.