Trusts can be excellent estate planning tools, helping reduce taxes after death. However, their utility goes beyond end-of-life planning. Trusts can help you protect your assets throughout your lifetime and beyond. Whether you’re concerned about creditors, taxes, ex-spouses or business partners, or spendthrift children, your hard-earned wealth can benefit from the asset protection a trust provides. 

Let’s take a look at how it works. 

Keep creditors at bay

Trusts protect assets by exerting irrevocable ownership over them. That means as the grantor, even you can’t alter or end the trust once it’s been put into place. This type of trust is different from a revocable trust, which lets the grantor modify it. And once assets are placed in the trust, you don’t have any ownership rights over them. 

Because the assets are no longer yours, creditors cannot use them to satisfy claims against you. However, this doesn’t absolve you of responsibility for existing debts or claims when you fund the trust. There also may be a “look back” period that could eliminate the protection endowed by your trust. (Among other restrictions.)

Good fences make good trusts

What happens to your assets after they are handed down to your children, your grandchildren, and beyond? If you’re concerned about how your beneficiaries will handle your assets, you may benefit from creating a “spendthrift” trust. Spendthrift trusts go beyond protecting your heirs from misusing your assets. They can also protect family assets against unscrupulous business partners, creditors, and from loss of assets from relationship changes. If your grandchild divorces, for example, their spouse (generally) wouldn’t be able to claim a share of the trust in their settlement. 

Spendthrift trusts are created by adding a spendthrift clause to the trust document. The clause limits the beneficiary’s ability to assign or transfer interests in the trust. It also limits the rights of creditors to access the trust assets.

When it comes to keeping your trust safe, trustees are important. If you need a trustee to make distributions for a beneficiary’s support, a court may also rule that creditors can access funds to resolve support-related debts. To amp up protection, you can give your trustee total discretion over when and how to make distributions, but you should carefully consider whether the benefits of access for your trustee outweigh the risks of creditors gaining access. 

Make asset protection a priority

Protecting your assets is a priority. Trusts play an important role in building that protection. To learn more about your options, reach out to us for a free consultation.