When you work hard for a lifetime, you want to protect what you’ve earned. It makes sense to consider how to keep your assets safe from unnecessary loss. Aging without safeguarding your assets is dangerous to your financial health. The older you are, the more financial pitfalls you face. The longer you’ve saved, the more you have to lose. Let’s look at asset protection strategies that you need to know for your future wellbeing.
There are more ways to lose assets than can fit into a simple list, but some of the top ways to lose a nest egg include:
- Creditors: Anytime you share a bank account or own property with someone, their creditors are your creditors. If a spouse is irresponsible and has a spending problem or a gambling addiction, their bankruptcy affects you as well.
- Taxes: If you own property or a business, you know very well how the government takes its share each year. They also take their share when you die and try to leave money to heirs.
- Lawsuits: If your business or savings lies in an unprotected checking or savings account, in stocks, bonds, etc., a case can easily strip your savings away. Because your assets belong to you personally, they remain at risk.
- Former spouse: A former spouse can take advantage of your new, more lucrative job or inheritance monies. You could end up back in court for child support or alimony. If your ex can prove that you’ve had that earnings potential all along, you could pay for your new success. Courts routinely grant requests to modify alimony and child support.
- Spouse: A soon-to-be ex-spouse may plan to take you for all you’re worth. Protect your assets sooner rather than later if you feel at risk.
- Business partners: If you have not planned for protection against a business partner, you need to consider your business structure and reduce your personal liability. Talk to a business attorney to set up the correct business structure for your goals.
- Care services: As you age, you may need to consider care costs. Almost 70% of people age 65 and up will need long-term care in the future. If you protect your assets, you won’t need to spend them down on your medical expenses in order to qualify for Medicaid coverage. Nursing homes cost upwards of $5,000-$7,000 per month. Planning for a possible care need protects your savings.
- Medicaid recovery: If you do use Medicaid services to cover your expenses, protect your family home. When you pass away, Medicaid recovery may place a lien on your family home to cover the costs for your nursing care.
Why Make an Asset Protection Strategy?
A child who owns a house with you can lose your home for you if they go bankrupt. A spouse who owns a savings account with you can claim a portion of that account if you divorce. An ex-spouse can take you back to court for more alimony. A civil lawsuit can grab assets you thought were safe. Trusted business partners can sue you for everything you’ve worked for in the last 30 years.
Nursing and assisted living homes understand the dire situation you face if you haven’t planned for Medicaid to cover your costs. They are more than happy to help themselves to everything you’ve saved for a lifetime. And when you pass away, Medicaid recovery and estate taxes steal the rest of your family’s inheritance.
Asset Protection Trusts
However, you CAN protect yourself from all of the above scenarios with a trust. Establishing a legal trust is the best protection for assets. A trust is simply a legal framework that owns your assets for you. Protecting what you own is simple when you no longer own the assets. No one can make claims against assets that you no longer hold in your possession.
Trust language gives power to a trustee who distributes your assets according to the terms of your trust. Your trustee may not act in a manner contrary to your trust.
In some types of trusts, you may act as your own trustee. With other trusts, you must appoint someone other than yourself as the trustee. You may appoint someone you implicitly trust, or you may select a bank or other fiduciary as the trustee. The trustee’s job is simply to act in the trust’s best interest, using the language of the trust as a guide.
Drawing up your trust with an experienced attorney can accomplish your goals for asset protection.
What Are Your Goals?
Trusts go by many names, depending on your financial goals and your personal situation. All trusts exist to protect your assets. A knowledgeable attorney will know the specific language needed for your particular concerns by asking you these questions:
- Who are you protecting? Yourself? Your heirs?
- Who can take your assets? Other family members? An ex-spouse? Creditors? Taxes?
- Why now? Medical events recently? Concerned about future bankruptcy? A threat from a family member?
- What types of assets do you wish to protect? A home? A joint bank account? Stock holdings?
Types of Trusts
Some of the popular trusts to consider include:
- Medicaid Trust: protects you from nursing home costs and allows you to qualify for Medicaid
- Family Trust: a specific type of trust that families use to create a financially successful future for generations to come.
- Domestic Asset Protection Trust (DAPT): an irrevocable self-settled trust in which you designate a beneficiary and allow access to the funds in the trust account. Protects your assets from creditors.
- Charitable Lead Trust: Irrevocable trust where you name a charity to receive income from the trust for many years. You may also receive monthly income, gift, or estate tax deduction on the assets.
- Charitable Remainder Annuity Trust (CRAT): provides income to a designated beneficiary as an annuity. After the death of the beneficiary, the trust remainder goes to the charity of your choice.
- Charitable Remainder Unitrust (CRUT): provides income to a named beneficiary during your lifetime. After death, the trust remainder goes to the charity of your choice.
- Testamentary Charitable Remainder Annuity Trusts (TCRAT): you contribute assets to a charitable trust which subsequently pays a fixed income to a designated beneficiary
- Credit Shelter Trust: after your death, allows your spouse to pass assets to children without estate tax.
- Education Trust: trustee may only distribute funds for the educational purposes of a beneficiary
- Pet Trust: Trustees distribute funds for the care of a pet
- Grantor Retained Annuity Trusts (GRATs): minimizes taxes on large financial gifts to family
- Grantor Retained Unitrusts (GRUTs): you receive payments from the trust equal to a fixed percentage of the trust’s value once a year
- IRA Trust: your trust is the beneficiary of the IRA. After your death, required distributions from the IRA go into your trust. This way, your trustee distributes assets to a beneficiary rather than your beneficiary receiving the distributions directly.
- Living Trust: allows your assets to bypass the time-consuming and expensive legal process of probate.
There are many names for possible trusts depending on your goals. These complex legal documents may accomplish different goals and go by different names depending on the attorney who draws up the language for the legal documents. Talking with an estate planning or asset protection strategy attorney can help you choose the best trust for your situation and goals.
We Can Help
At Vail Gardner Law, we work with you to understand your future goals and assets you aim to protect. Listening to you and understanding your needs allows us to draw up trusts that protect you and your beneficiaries for years to come. With the legal knowledge and experience you need to keep your hard-earned money, our legal team assists you in protecting your assets. Contact us today and get started making plans that protect your future. Talk with us and find out how we can help.