Many people begin their estate planning efforts with just a handful of goals in mind. These typically include things like avoiding probate and ensuring that assets get properly distributed to their heirs. Some take it a step further and look for ways to mitigate tax obligations or take care of certain heirs that need more structured inheritances. To truly make the most of your comprehensive estate planning strategy, however, you should also be looking at ways to safeguard your assets. An asset protection trust can be an important part of any effort to keep your wealth secure.
A Legal Way to Protect Your Assets
Florida’s trust laws are designed to provide its citizens with the ability to use properly-drafted trusts to ensure asset protection. These laws are rooted not only in statutory law, but in the common law and court rulings that have helped to define the meaning of those statutes. Those courts have repeatedly affirmed that a beneficiary’s trust assets are safe from creditors any time that the trust is written with a spendthrift provision in place. That provision denies the beneficiary the right to assign his or her interest in the trust. That effectively keeps creditors from getting their hands on any of the assets in the trust – though they can seek them once distributions have been taken by the beneficiary.
Of course, the so-called spendthrift trust is but one type of asset protection trust that you can use. There are a variety of different trusts that can be used to safeguard your wealth, providing protection against everything from estate taxes to creditors. There are even trusts designed to help you protect some assets while you ensure Medicaid eligibility to help cover the costs of nursing home care. Depending on your circumstances and goals, one or more of these asset protection vehicles may be right for you:
- Life insurance trust. An irrevocable life insurance trust – or ILIT – can be an effective way to protect the benefits provided by your life insurance policy and guard them against both creditors and estate taxes. The ILIT is like other irrevocable trusts in that it provides a way to remove assets from your estate, thereby protecting them from tax liability and ensuring that the value of the assets is used to benefit your heirs. The difference here is that the asset in question is your life insurance policy.
- Qualified Income trust. In Florida, you can also use what is known as a Qualified Income Trust (sometimes called a Miller Trust, or QIT) to enable you to qualify for important Medicaid benefits even when your income is more than the program’s qualification limits allow.
- Medicaid Asset Protection Trust. It is also possible to use a Medicaid asset protection trust to help you qualify for Medicaid while preserving your assets for your heirs and loved ones. When you assign income-producing assets to this trust, you are still allowed to receive the benefit of that income. Income-producing assets contained in these types of trusts commonly include things like CDs or stocks that pay dividends over time. The assets themselves can be distributed to your heirs when you die.
Why Asset Protection Trusts Shield Wealth
The asset protection trust is often not fully-understood even by those who use them to safeguard their wealth. Many don’t understand why the assets in their trust are free from creditors, taxes, and other threats. It can be helpful to understand those things, however – if only to help you recognize when these tools can be of benefit to your estate planning efforts.
Asset protection trusts are irrevocable for a reason. The irrevocable trust offers protection benefits that a simple revocable trust cannot – primarily as the result of the way that this trust removes all control over the assets from the grantor. With a revocable trust, you can name yourself as trustee and beneficiary, which leaves you with almost unquestioned control over the assets you’ve transferred to your trust. Moreover, you can revoke those trusts without much trouble. And if you can revoke the trust, then have you ever truly put those assets beyond your reach? Obviously, the answer is no.
The problem then is simple: if you still have control over the assets and can reclaim them at any time simply by revoking the trust that owns them, then so too can your creditors. Tax officials can also gain access to those assets, by considering them to be part of your estate. In short, if you can access the assets, then there is no wall of protection guaranteeing that they are free from any creditors.
Irrevocable trusts are a different matter entirely. You must name someone else to serve as trustee, and list beneficiaries for whose benefit the trust is managed. The trust cannot be easily revoked or amended in any way, so you lose not only ownership but control as well. And since you cannot access those funds, neither can your creditors. Your wealth is effectively beyond the reach of anything that might threaten it. Moreover, those funds are not countable as part of your estate when you’re applying for means-tested benefits or calculating tax liability.
Strengthening Your Estate Planning
When you’re creating your estate plan, there are a whole host of concerns that must be addressed. Asset protection should always be addressed to ensure that the wealth you’ve built can be secured for your retirement and legacy needs. The use of these types of irrevocable trusts can help you to achieve those goals, but it’s important to get the help you need to make sure that everything is done properly.
At Kulas & Crawford, Medicaid & Estate Planning Attorneys, our trusts attorneys can work with you to provide your assets with the protection they need to withstand a variety of threats to your wealth. When you have the right asset protection trust in play, you can rest assured that important needs like legacy planning and Medicaid eligibility are preserved. Our trust experts will help you find the right trust for your needs to give you the peace of mind that you and your family deserve. To learn more about how these irrevocable trusts can benefit you, contact us at our website or call us today at (772) 398-0720.
