A trust is basically a legal contract created to transfer one’s properties and assets to another person at a certain point in time. A trust is a legal entity. It’s like a real, living, breathing person, but it is just a legal document. Some trusts are asset protection in nature and other types of trusts are not. A good asset protection lawyer will know whether to use trusts or corporate entities or other types of businesses (think LLCs or corporations, partnerships, etc.) When there is a trust, typically there are three parties to this document. There is a trustor, a trustee and the beneficiary.
A trustor is also called a settlor or a settler or a trustmaker or a donor or a creator. We usually used the terms trustor or settlor most often. A trustor is the person who makes or establishes the trust. The first is the most common. It should be spelled with the -or and not with the -er. This is because the a settlor is different legally than a settler. The trustor sets up or makes the trust. This party is essential to the creation of a trust, including an asset protection trust.
A trustee is a name that many people have heard of before (some people put it down as “trusty” but that is an incorrect spelling). A trustee is the person who is in charge of the trust who holds the property “in trust” for the beneficiaries. The trustee has a position with a fiduciary duty for the trust and the beneficiary. They are in a position of trust. The settlor or trustor holds confidence and trust in the trustee to do their best for the beneficiaries.
Other words for a beneficiary is: devisee or cestui que trust. A devisee is the recipient of a devise or a benefit. This word dates back to at least the nineteenth century (see e.g. Bigelow v. Gillott, 123 Mass. 102, 107 (1877)) which meaning is someone who receives an inheritance. Similar to an heir, but a devisee or a beneficiary is specially named in the trust document and so it’s not a right by blood, it’s a right by naming the individual or entity in the trust agreement.
You may have heard of a living trust because the assets of the trust or property eventually gets divided and/or disseminated to the beneficiaires upon the trustor’s death or when the trust document provides for a distribution.
As we mentioned previously, there are several types of trusts. A revocable trust, simply put, can be changed by the trustor at anytime they want to; whenever circumstances change, or if they feel the need to do so, while the irrevocable trust cannot be changed.
Irrevocable Trusts for Asset Protection
The irrevocable living trusts provide asset protection for the trustor and the trustor’s family. By putting assets into an irrevocable trust, the trustor surrenders control and access to the trust assets and making it unreachable for a creditor of the trustor or settlor. The trustor’s family can be the beneficiaries of this irrevocable trust. In that way, the trustor still provides the family with financial support, but remains out of the reach of creditors. Also, the irrevocable trust can offer asset protection of the trust’s beneficiaries.
Having irrevocable living trust asset protection means that you and your family have secured your assets and property. It all depends on the planning or the actual living trust information. Knowing the provisions of your irrevocable living trust asset protection should all be in you and your families benefit.
There are a wide range of irrevocable trusts used primarily for estate planning purposes. However, irrevocable trusts can also provide asset protection benefits by insulating the trust assets from liabilities of trust beneficiaries and to some extent, the trust settlor. The assets in an irrevocable trust are protection from the liabilities of the beneficiaries if the beneficiaries do not have a certain, defined interest in the trust (i.e., the beneficiaries interest is contingent on a future event or the interest is subject to the discretion of the trustee), or the trust agreement includes a “spendthrift” provision which prevents creditors from making claims against the beneficiaries’ interest in the trust and also prevents the beneficiaries from transferring or pledging their interests. If the trust includes these protections, the only time assets would become subject to creditors of a beneficiary is after the assets are distributed from the trust and become the beneficiary’s personal property. Consequently, as long as the assets are retained in the trust they are protected and can continue to provide for and benefit the beneficiaries beyond the reach of their creditors.
The irrevocable nature of a trust can also limit the reach of creditors of the trust Settlor. Since the trust is “irrevocable” the Settlor cannot later change his mind and terminate the trust and take back the assets. Rather, upon transfer into the trust the Settlor has no power or authority to change the terms of the trust, use the trust assets or derive any benefit from the trust except as provided in the trust agreement. In the absence of fraud, generally creditors of a Settlor cannot reach an asset within an irrevocable trust if the Settlor gives up complete control over the trust. However, if the Settlor retains any interest in the trust or the pwoer to change the trust terms of dispositions, the Settlor’s creditors may be able to reach the trust assets to the extent of the Settlor’s retained power or interest.
Thе Mаnу Bеnеfitѕ оf an Irrevocable Trust
Many of my clients have asked me about the benefits of using a trust as part of their estate plan or asset protection plan but they are unaware that there are many different types of trusts and each may serve an important purpose as a part of your estate plan, depending on what your ultimate goals are concerns are.
For example, a special needs trust allows for your beneficiary to receive a stipend of money or financial help of some sort from the trustee without affecting or negating any financial aid they receive from the government due to a disability or disorder of some sort. Of all the many different categories of trusts, the two most basic are the revocable living trust and the irrevocable trust.
Every trust, no matter what its purpose is, will be labeled as either revocable or irrevocable. An irrevocable trust serves dual purposes of (1) asset protection; and (2) estate tax reduction (in some situations). It can also be a form of estate planning. The assets in an irrevocable trust are protected because the grantor no longer owns them pursuant to the terms of the law.
When an irrevocable trust is created, a new legal entity is formed with its very own federal tax ID number (this is like a social security number for the trust so it can file tax returns, open a bank account, etc.) Remember, it is not an extension of its maker. To the contrary, it is its own entity that can accept, manage, buy, sell, and distribute assets through the named trustee and only by the wording of the initial trust language. once the irrevocable trust is created and funded, it can no longer be amended or revoked. The only parties with access to the trust assets are the trustee and the beneficiaries through the trustee’s actions. All actions must be governed by the trust document.
Normally, the grantor is not permitted to be the trustee or the beneficiary of an irrevocable trust – but it really depends on the type of the irrevocable trust that is set up. The trustee may be the same party as the beneficiary and this is often the typical situation. Once the trust is funded (meaning that the assets are placed into the trust and the trust owns them); then, they are now protected from the creditors, litigants, and even spouses. There is a look back period however along with the fraudulent conveyance statute that you need to be aware of in setting these up. A good asset protection lawyer will be able to guide you on these issues.
A Few Asset Protection Trust Issues To Keep In Mind
Before drafting an irrevocable trust, a revocable living trust or an asset protection trust, you should speak with your family and loved ones. Some of them might not want to be involved, but it can be helpful to have other people’s input. You surely should speak with an attorney about all this. To avoid problems that the trust’s benenficiaires might encounter, it might be a good idea to have them involved.
After the estate plan and/or asset protection plan is in place, sit down and speak with your family, significant other, spouse, etc. so that they know what you are thinking. If there is a post-nuptial agreement or pre-nup or some other type of marital documents, be sure you tell your lawyer about it so they can incorporate that into the overall plan. Your spouse may have other assets or other issues that you may or may not have considered that would need to be transferred into the trust.
Finally, it is also important to keep in mind that much like an estate plan, an asset protection plan must be carefully considered and drafted to meet each person’s individual circumstances. With the many tools available to lawyers in Utah and the myriad of ways in which they can work together, asset protection should only be done with the guidance of experienced professionals who can correctly analyze your specific situation and help formulate a plan that will work for you now and in the future. Our lawyers have seen way too many cases where good people try to save a few dollars by doing it themselves and wind up in a bigger mess than when they started. It’s always best to get help. After all, you don’t do your own dental work – especially if you never went to dental school. You get the point.
Asset Protection Free Consultation
It’s not a matter of if, it’s a matter of when someone decides to come after you for all you’ve got. You must you have a legal question about asset protection, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506