How does a trust protect my assets?

A trust can protect your assets by creating legal separation or a legal barrier between you and your property.

In order to understand this better, you need to first understand the three roles involved in creating a trust. 

First, there’s the trust maker or the creator of the trust. This is the person who funds or places assets inside the trust. Then you have the trustee who acts as the manager of the trust and has to follow the instructions provided by the trust document. And then you have the beneficiary of the trust, which is the person who benefits from the assets placed in trust.

So, in a typical asset protection trust, the trust maker will create a set of rules and limitations on their own rights, the rights of the beneficiary, and the guidelines for the trustee to follow. Most importantly, the trust maker will set up the trust so it is irrevocable (not to be confused with revocable) - irrevocable means that once the terms of the trust are written, they generally cannot be changed (this is one of the ways in which the trust maker is giving up control of the property - by restricting his or her ability to make changes to the trust he or she is forfeiting certain rights over the property held in that trust). The benefit of intentionally restricting yourself from being able to change the trust and directly accessing the assets within it, is that it also then restricts the ability of others to control or go after the property - that is what creates the legal shield or a legal barrier from creditors, lawsuits, or other situations.

One major point of confusion among a lot of people (especially when they start googling this stuff) is that they think they can just create a trust, put the stuff in the trust, maintain complete control to the trust assets, and then they are all set. That is not how it works. In other words, self-settled trusts that name you as a beneficiary generally do not work because there’s really no difference between you owning the property in your name individually versus it being owned by the Trust in such a scenario.

So what are some examples of asset protection trust? 

There are medicaid asset protection trusts (also known as MAPTs), which are designed to protect assets in the event that you need to go a nursing home. There are spousal lifetime access trusts (SLATs), which can be used for both creditor protection and tax purposes. Then there are life insurance trusts (ILITs) that are designed to hold life insurance policies to avoid the life insurance proceeds from being includable in your estate for tax purposes. 

If you’d like me to review your trust or create a trust for you, click the link below to schedule a call today.