Asset protection is one of the most common reasons that people fund trusts. They move real estate, retirement resources and business holdings to a trust to avoid threats to their most valuable assets. Trusts can manage and distribute resources. They also act as a legal shield to protect assets in certain circumstances.
What are the key forms of protection that grantors or trustors derive from a trust in re: asset protection?
1. Protection from litigation
If a person faces a lawsuit due to claims they injured another person or breached contractual obligations, the courts could order them to pay damages. Litigation can endanger high-value resources, but asset protection trusts limit the likelihood of property owners facing the forced liquidation of their resources due to a lawsuit against them or even a divorce in some cases.
2. Protection from creditor claims
Various creditors, from credit card companies and hospitals to the Medicaid estate recovery program, can make claims against people’s property while they are alive or after they die. Those claims can necessitate the liquidation of resources. Trusts can protect important assets from creditor claims while the trustor is alive and from estate claims during the probate process after they die.
3. Tax liability protection
For those with particularly sizable personal holdings, estate taxes are a legitimate concern. A significant portion of their property could go to federal estate taxes after they pass. The creation of a trust can help people minimize the estate tax rate that applies or completely avoid estate taxes.
Discussing personal asset protection concerns with a lawyer can help people choose the right type of trust and structure it effectively for their asset protection needs. A lawyer’s support can take much of the uncertainty and stress out of funding a trust.