By: Jessica L. Estes, Esq.
If you read last week’s #TuesdayTips article, you learned how to protect your stuff in three easy steps: 1) know the rules; 2) know your predators; and 3) know your options. Easy, right? But, knowing is only half of the equation. Now, it is time to: Assess your needs; Create what is missing; and Tie in your plan. In other words, you must ACT!
Protecting your stuff starts with an assessment of your needs, which, in turn, requires careful consideration of your goals and values. Typical goals of an estate plan include maintaining control and not becoming a burden to loved ones, all the while keeping it as simple as possible. Most people would agree that protecting their stuff from future long-term care costs, is important to them. That way, they maintain control of the assets, protecting them after they are gone for the benefit of their loved ones, while at the same time, minimizing the costs of such long-term care and the burden to their family while they are alive.
So how, exactly, does an asset protection trust work? First, there are three parties to a trust – the grantor, trustee and beneficiary. The “grantor” is the person who is transferring his or her assets to the trust. The “trustee” is the person who manages and administers the trust in accordance with the trust provisions. The Trustee is responsible for making all decisions regarding the trust, including any management or investment decisions, as well as deciding whether to make distributions from the trust. The “beneficiary” can be a single person, multiple people or an entity such as a church or charity. There are two types of beneficiaries: “lifetime” beneficiaries and “residuary” beneficiaries. “Lifetime” beneficiaries are those individuals named by the grantor who are entitled to receive distributions of income and/or principal during the grantor’s lifetime. The “residuary” beneficiaries are those individuals named by the grantor who are entitled to receive distribution of the trust assets after the death of the grantor.
After the trust is established, your assets must be transferred to the trust and the trust will become the owner of the assets. Even though you will no longer own the assets, you maintain control of them because you are the trustee. The plan must, of necessity, though, limit direct access to the principal to ensure that creditors, predators and lawsuits do not obtain access to it. Still, the trust can provide indirect access to the principal during the remainder of your life through your designated lifetime beneficiaries.
Finally, upon your death, and because the trust is a separate entity, any assets owned by the trust would bypass probate and could be distributed immediately to your residuary beneficiaries. Overall, irrevocable asset protection trusts are not only a great way to protect your stuff, but also can be very flexible and easily customized to meet your individual goals.
Call ERA Law Group, LLC today at (410) 919-1790 to learn more!