Revocable Living Trust
Having a revocable living trust (RLT) is a way to completely avoid probate and control exactly how your assets will be distributed when you die. This type of trust is typically referred to as a RLT and is often used as a substitute to your will, or it is used to distribute a bulk of your assets when you pass, allowing the will to be used as a supplement for only minimal assets. A RLT permits you to keep total control and access to all your assets during your lifetime, and provides for the distribution of your assets to your beneficiaries at your death. We often refer to a RLT as your “book of instructions.” Everyone – both young and old – can benefit from a RLT. Other advantages, when property drafted, can include:
- Asset protection for your spouse after your death.
- Special needs planning for disabled beneficiaries.
- Asset management and protection for children who are not proficient with handling money.
- Protection of assets from a spouse’s subsequent remarriage after your death.
- Disability planning in the event you become disabled prior to death.
- Asset protection for your child if his or her marriage should fail to ensure your assets are not part of a divorce settlement.
- Keeping your affairs private (as opposed to open for public review in probate).
- No court intervention required (handled entirely by the Trustee you name in accordance with your detailed instructions).
- Plan for proper management of your business in your absence.
But Note: Very few RLTs provide these benefits. Only a qualified estate planning attorney will know how to incorporate these protections into your plan. While a RLT has many advantages, it does not protect your assets from a nursing home, lawsuits, divorce bankruptcy or other creditors.
Irrevocable Living Trust
Although a revocable living trust (RLT) is a great way to avoid the complexities and expense of probate, it does not protect you against creditors (including credit card companies or an unexpected lawsuit), nursing home long-term care costs, or even divorce. An irrevocable living trust, otherwise known as an irrevocable pure grantor trust (we call it an iPug® trust) protects against all of these threats, and still provides you with a significant level of flexibility.
It is a common misconception that an irrevocable trust cannot be changed after it is created. While this is true of many irrevocable trusts that are created to avoid taxes, irrevocable trusts like an iPug® that are used for asset protection do allow you to have much more control, and you get to decide to what extent you exercise such control. Even though the iPug® is irrevocable, you can still choose to:
- Be the trustee or change the trustee;
- Receive all of the trust income;
- Change the asset and/or investment within the trust;
- Live in and use trust real estate;
- Change beneficiaries;
- Make distributions to beneficiaries during your lifetime (i.e., help children pay for education)
Debtor/Creditor law provides that whatever you can get, your creditors can get. For instance, an iPug® that allows you to receive only the income generated by the assets in the trust means that you would give-up your rights to the principal, but you your creditors – including Medicaid – can never have access to the principal, either. In an iPug®, you can retain the right to change who gets your assets during your life and after your death, and maintain 100% control of your assets until your mental disability or death.
An iPug® is a very effective way to protect you assets, but it is a highly technical type of trust. Make sure that you work with an attorney who is knowledgeable about this particular type of trust.