One of the primary objectives for many estate plans is ensuring that assets are passed on to their intended beneficiaries, and not diminished or wholly taken by creditors. Commonly, this end is achieved using an irrevocable trust. Simply put, trusts allow individuals to transfer assets out of their own ownership and place them in the care of another person, so that they cannot be pursued as personal property. With these estate planning tools, it is possible to make sure that your wishes and legacy are honored as you intend for them to be.
Irrevocable trusts are very effective at protecting assets, primarily because they permanently remove the creator’s control of the assets used to fund the trust. Once the assets are placed in the trust, the creator of the trust is no longer the legal owner of those assets, and therefore the assets cannot be pursued by creditors, much in the same way that a creditor cannot seize a car from you that you no longer own. These trusts require a great deal of forethought to be effective and not problematic later on — an irrevocable trust is named this way because it cannot be modified later if the creator changes his or her mind.
Creating an irrevocable trust is not a one-way ticket away from creditors, however. Courts retain the ability to nullify some or part of an irrevocable trust if it believes that the assets therein were were placed in the trust specifically to evade a creditor or creditors. This makes it extremely important to begin protecting your assets as long before you anticipate having issues with a creditor as possible.
The use of an irrevocable trust can be an excellent way to protect your assets and ensure that they go to the beneficiaries you wish to have them, but it is a restrictive tool that requires a great deal of careful planning to be exactly the tool you want it to be. If you believe that an irrevocable trust may be the right tool for your estate plan, an attorney with experience in estate planning can help you craft the perfect document for your legacy.
Source: Estateplanning.com, “Two Types of Trusts: Which Protect Against Creditors?,” accessed Sep. 30, 2016