When, and for whom, is it the right choice?
In the past, trusts were seen primarily as a means of transferring wealth from high net worth clients to their loved ones.
In recent years, innovations in trust planning have made them useful in the estates of middle-class clients. They are now used to protect estates from being lost due to the effects of living longer, having diminished capacity, and spending more years being vulnerable and ill.
Asset protection trusts can help to avoid loss to the costs of long-term care, as well as potential lawsuits, scams, undue influence, and other dangers.
Like most estate planning tools, an asset protection trust is a powerful tool in the right circumstances, but certainly not appropriate for everyone. An experienced elder law attorney should know the situations in which it works best.
An ideal candidate is often an elderly person, or married couple, who has accumulated a fair amount in assets and wishes to protect the estate from the various dangers just discussed, but is not typically high net worth. It is best if the person is healthy enough to be likely to get through the next five years without needing skilled care in a nursing facility, or in the alternative, has long-term care insurance to help get through a Medicaid look-back period.
Also important are the types of assets a client owns. If much of the estate is held in qualified retirement funds, adverse tax consequences may make the trust unsuitable. On the other hand, a house, investment fund, savings, and other assets not required to fund living expenses can be perfect for asset protection using a trust.
Family dynamics also affect suitability. An ideal candidate for an asset protection trust has close, trustworthy family members to name as trustees, successor trustees, and beneficiaries. The trust may last for a number of years, and these family members can play an important part in making sure that the trust achieves its purposes. Unexpected circumstances may arise, and require modification, or even termination, of an asset protection trust. Family harmony will help in navigating rough waters.
There are other factors that affect suitability of an asset protection trust, but these of the factors most commonly considered.
At our regularly held workshops, we discuss asset protection trusts in detail. Attending a workshop will help you learn more about how a trust can protect you and your family, and provide a more secure future.