Asset Protection

ADVANTAGES AND DISADVANTAGES OF LIVING TRUSTS

Revocable trusts have become popularized with the living trust (or loving trust). The living trust is usually nothing more than a simple revocable trust. The living trust avoids the expense, delay and notoriety of probate. It offers neither tax advantages nor disadvantages, nor significant asset protection, other than in the two instances stated earlier. An irrevocable trust can be a living trust and would be safer.

For a living trust, the grantor ordinarily names himself the income beneficiary. Upon his death, the trust assets are distributed to designated beneficiaries. However, during his lifetime, the grantor controls the trust and can freely revoke or modify the trust.

The grantor may elect to use one living trust, or several trusts, to accommodate different beneficiaries or property. The living trust may also be the beneficiary of pensions, insurance policies, Keoghs or any other cash value resources.

The living trust has become popular because it avoids probate. Upon the grantor's death, the trust assets pass directly to the beneficiary, which reduces the cost of administering your estate and also avoids delay in distribution and disclosure of your personal and financial affairs. This does not suggest that you can forget a will, which remains essential to dispose of assets that for one reason or another have not been transferred to the living trust. A will is also needed to name guardians for minor children.

A living trust does not reduce estate taxes, although a husband and wife can use living trusts to maximize estate tax credits. Conversely, other than for the small cost to prepare and administer, a living trust poses no disadvantages. A revocable living trust is worthwhile for anyone with significant assets to leave, particularly when coupled with entities that do provide asset protection.

Millions of Americans have living trusts, which in most cases are revocable trusts because the grantor never considered asset protection their primary objective. Others who wanted asset protection did not wish to lose control over the trust assets. One solution is to compromise with two separate living trusts, one revocable and the other irrevocable. The revocable trust can those hold assets you want to control. The irrevocable trust can include assets to be creditor-proofed. You can satisfy conflicting objectives with two or more trusts.

Another disadvantages of the living trust is that you lose asset protection if the trust provides less protection than how you originally titled the asset. For instance, you may lose homestead protection by titling assets as tenants-by-the-entirety.

The living trust is most commonly used in combination with such other asset protection structures as the limited partnership, where the living trust can be the limited partner while the assets are titled to the partnership.