March 15, 2021

Asset protection, tax planning, or legacy control are just some of the numerous reasons why trusts can be used. However, the most common use for a trust is to avoid probate, therefore allowing for an easier transition of assets. This is most likely accomplished using a revocable living trust.

For some, it may be important or even desirous to avoid or sidestep the use of a trust. This may be because individual circumstances do not allow for planning using the trust due to factors such as cost considerations.

The benefit of a trust is that it allows the creator to establish their own set of rules, rather than rely on those of a beneficiary designation or probate courts. The biggest detriment of trust planning typically is the creation and fermentation of it. If it is not done properly, it could have disastrous impacts, or at a very minimum, be a waste of time and money to create.

Often, folks will resort to using legal strategies or titling strategies to avoid a trust. This might be done by adding beneficiary designations, transferring on death/payable on death titling, or just including family members or other beneficiaries on title during lifetime. But taking a shortcut is not without its unintended consequences. For example, naming someone as a beneficiary means they will get the asset outright. There is no guarantee that the asset will be protected against creditors, lawsuits, divorcing spouses, etc. Additionally, if the beneficiary were to pass away, you can then see the assets making their way to individuals or organizations who may not have been intended contingent beneficiaries. A trust can prevent that. You may also want to avoid having certain classes of beneficiaries receive assets outright, such as feeling members, receiving government benefits, or have special needs or substance abuse issues. In such cases, one should strongly consider using trust planning.

When asset protection is a concern, one should consider trust planning, but they may also consider using certain legal planning strategies. In many states, life insurance proceeds are protected from creditors and lawsuits. In other states, one’s home may be protected from creditors. Individual retirement accounts are treated differently from state to state, while ERISA governed plans such as most 401(k)s and defined-benefit plans have federal asset protection rules built in already.

If you are not sure if a trust is right for you & would like guidance, please feel free to call us at 732-521-9455.