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What is an asset protection trust?

| Sep 21, 2020 | Trusts |

People in California work hard for their money and generally people would like to be able to keep it for their own purposes. People may also be getting older and want to make sure that their money and assets end up going to their family when they pass away. However, there are many unexpected events that happen throughout people’s lives and some events could lead to people’s money and assets being exposed to creditors or lawsuits.

These are very unfortunate events that could cause people to lose the assets they worked so hard to earn. There are ways that people can protect their assets from creditors and potential lawsuits though. People can put these assets into trusts, but it has to be specific types of asset protection trusts.

Basics of asset protection trusts

Many people may have set up revocable trusts for estate planning purposes, but these will not protect assets from creditors. This is because people generally retain control over the assets and also can add and remove assets from the trust throughout their lives.

So, in order for the trust to protect your assets people need to set up an irrevocable trust. This means that once property is in the trust it cannot be removed. Usually the person is also not the trustee which limits the person’s control over it. The trustee then needs to administer the trust for the benefit of the beneficiaries of the trust only. The beneficiaries could be children, spouse or other people that the property will go to eventually.

There are many reasons why people may want to set up an irrevocable trust in order to protect certain assets. These can be effective tools, but it is important that they are set up and funded correctly. Since they are irrevocable, they cannot be changed later, so people must be certain they will be handled in the way they want. Experienced attorneys understand how to set these trusts up and may be able to guide one through the process.

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