Asset protection is important to some individuals for one reason or another. Some lines of work leave people open to legal actions, and shielding resources from the disgruntled former spouse of a family member can be another concern. Some people hear about revocable living trusts and assume that revocable trusts will provide asset protection. While these trusts are valuable for many reasons, it is important to understand that they do not provide asset protection during your lifetime. Let our Ashland living trust lawyer help you with proper asset protection.
Why doesn’t a revocable living trust deliver asset protection?
Most people who establish a revocable living trust will act as both the trustee and the beneficiary — they retain complete control of the assets in the trust. The grantor of the trust may also dissolve it or alter the terms at any time.
Because the grantor has complete freedom to do whatever he or she wants to do with the assets in the trust, they are not protected from creditors seeking to attach the personal property of the grantor.
Medicaid and revocable living trusts
Some people have misconceptions about Medicaid and revocable living trusts as well. Many seniors pay for long-term care with Medicaid since Medicare won’t pay for an extended stay in a long-term care facility. You must stay within a modest upper resource limit to qualify for the program. Therefore, individuals sometimes look for ways to divest themselves of assets in advance of applying for Medicaid.
Placing resources into a revocable living trust will not help because you are retaining incidents of ownership (control over the assets). Because of this, the assets that you placed into the revocable trust would be counted against you by the Medicaid program.
To provide asset protection or Medicaid protection during your lifetime, you would have to use an irrevocable trust (or a trust you cannot change).
Can my living trust protect a spendthrift heir?
A revocable living trust can provide you with a great deal of control when you are planning your estate, and this is the major benefit that you gain. For starters, the trust is revocable so you can dissolve the trust and take back the assets at any time. This is the ultimate level of control.
When you initially establish the trust, you can act as the trustee, and you can also act as the beneficiary. To facilitate asset transfers after you die, when you create the trust declaration you name a successor trustee, and you name a successor beneficiary or beneficiaries.
Protecting a Spendthrift
The successor trustee that you name follows the instructions you leave behind in the trust declaration. This provides you with the ability to protect a spendthrift heir from his or her poor money management habits. To provide a simple example, let’s say you want to provide for your son after your passing. Your son is a great person but is not very good with money. He has come to you on many occasions over the years for financial assistance.
You are concerned about your son needing help after your passing. If he receives a direct inheritance, he may be okay for a while, but he could burn through that inheritance quickly. Down the line, he may be in a very difficult position, and you would not be around to help.
To protect against this, you could instruct the trustee to distribute the earnings of the trust to your son on a monthly basis. You could also give the trustee the discretion to distribute more money under certain hardship circumstances. Perhaps you could allow your son to receive larger lump-sum distributions when he reaches certain age thresholds.
Other benefits of using living trusts
A living trust can be a good choice as an asset transfer vehicle even if you are not extraordinarily wealthy. If you would like to learn more about living trusts, download our special report. This report is free. If you would like to take things a step further, we would be glad to assist you. Our Ashland living trust lawyer offers consultations, and we can answer any questions that you may have about the value of revocable living trusts.
Join us for a FREE seminar today! If you have questions regarding living trusts or any other estate planning matters, please contact the experienced attorneys at The Potter Law Firm for a consultation. You can contact us either online or by calling us at (606) 324-5516 (Ashland, KY) or at (859) 372-6655 (Florence, KY), or for in individuals in North Carolina ((704) 944-3245) (Charlotte, NC or Huntersville, NC).
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
- What You Need to Know about the Medicaid Look-Back Rule - January 3, 2023
- How to Pass Down Your Legacy in Your Estate Plan - October 3, 2022
- Practical Steps to Take after Receiving a Terminal Diagnosis - September 30, 2022
