Q: Does a living trust protect my assets?
A: This trust is a great way to pass an inheritance but it will likely not help you through other situations. Here are my top tips on what a living trust does not do and mistakes to avoid.
Your living trust does not:
1. Provide asset protection from creditors;
2. Contain Medicaid planning strategies; or
3. Provide an income tax benefit during your life.
A living trust is an extension of you and does not create creditor protection. Therefore trust assets may be invaded by a creditor you owe money to including debt owed from a car accident not fully covered by insurance. If you don’t have long term care insurance a living trust does not generally provide techniques for asset preservation related to Medicaid planning and paying for in-home care, assisted living, or nursing home care. Finally, a trust does not create income tax advantages during your life. Tax planning for your heirs can be achieved through certain types of trusts or provisions in your living trust.
Mistakes to avoid:
1. Letting your trust grow old;
2. Probate by improper funding of your trust; and
3. Putting the wrong people in charge of your trust.
As you age your trust ages with you. Periodically reviewing your trust with an attorney can ensure your objectives are met. You can protect the inheritance you pass by reducing unnecessary expenses at your death such as probate. Be sure to review whether your trust is properly funded. An attorney can review your assets and make recommendations on how to retitle ownership or beneficiaries of each asset including your home. The goal is to divert assets to your trust or otherwise avoid probate with beneficiary designations. Finally, you should carefully select trustees upon your inability to act or death. Your children may not be the best choice and it may be necessary to get a professional trustee involved.
Be sure to contact us about upcoming seminars on estate planning, elder law, and asset protection topics.
