how does a living trust protect assets?
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Asset protection trusts offer a way to transfer a portion of your assets into a trust run by an independent trustee. The trust's assets will be out of the reach of most creditors, and you can receive occasional distributions. These trusts may even allow you to shield the assets for your children.
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The short answer is no, not necessarily. Trusts have many uses, particularly for tax, (just ask your accountant, they love them!) and while it is true that trust structures can make a property settlement more complicated, having a trust does not guarantee you can protect those assets from a claim by your ex.
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Many people choose to set up different types of trusts to manage their funds for their families, including after they pass away. Generally, a family trust is any trust set up for the benefit of someone's relatives and a living trust is one set up while its creator is still alive.
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A living trust is more expensive to set up than a typical will because it must be actively managed after it is created. Most importantly, however, a living trust is useless unless it is funded. A living trust only can control those assets that have been placed into it.
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A trust can protect your assets from medical expenses, especially when an illness or accident causes catastrophic debt.
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As a result, a creditor could go after the trust, seek its termination, and gain access to assets within it. So, to be absolutely clear: A revocable living trust does not protect assets from creditors. What Is an Irrevocable Trust? An irrevocable trust, on the other hand, may protect assets from creditors.
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An asset protection trust is designed to protect your money from creditors. You transfer ownership of cash or property to a trustee, who manages the cash and property for you. ... Also, it's important to transfer the property to the trust before you run into creditor trouble, or the transfer may be disallowed in court.
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['Creating the Trust Agreement. The grantor creates a trust agreement, which is a legal document that designates the grantor, the trustee, and the beneficiaries, and outlines how the trust assets are to be managed and distributed. ... ', 'Funding the Trust.']
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Trusts can provide protection for your wealth and tax advantages such as income splitting to reduce the aggregate taxes payable by you and members of your family. ... For example, your adult child and his or her children (your grandchildren) can receive income and capital distributions during your lifetime.
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The main benefit of a revocable living trust is that it saves your family time and money by avoiding probate after your death. But there are other advantages as well.
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Although a revocable trust may help avoid probate, it is usually still subject to estate taxes. ... Also, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences).
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Due to this change in ownership, a future creditor cannot satisfy a judgment against the assets held in irrevocable trust. ... A revocable living trust, on the other hand, does not protect your assets from your creditors. This is because a revocable living trust can, by its terms, be changed or terminated at any time.
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['Protect selected assets against claims and creditors – for example, to protect a family home from the potential failure of a business venture.', "Set aside money for special reasons, such as a child or grandchild's education.", 'Ensure our children, not their partners, keep their inheritances.']
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A revocable living trust will not protect your assets from a nursing home. This is because the assets in a revocable trust are still under the control of the owner. To shield your assets from the spend-down before you qualify for Medicaid, you will need to create an irrevocable trust.
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These terms are set out in a legal document called the Trust Deed. Unlike a Will, which comes into effect when you die, your assets are transferred to certain types of Trusts while you are still alive, and the Trusts continue to hold everything after your death.
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A revocable living trust isn't subject to the same kind of rules as a will; it should be valid in any state, no matter where you signed it. ... If you acquire real estate in your new state, you'll probably want to hold it in the trust, so that it doesn't have to go through probate at your death.
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The person who serves as the "executor" of a living trust is called the successor trustee. ... The executor gathers assets, pays bills and taxes, and eventually distributes what's left to the people who inherit it.