If you've recently reached a birthday milestone that puts you at the same age as a parent or grandparent who passed away, you may be battling a variety of conflicting emotions – perhaps chief among them the wistfulness that you've now hit an age you once dismissed as impossibly old. While the Baby Boomer generation is expected to be the longest-lived one yet, hitting these types of milestones can serve as a grim reminder that time marches on – and if you've accumulated substantial assets during your working years, you may be dismayed at the thought of them being used to pay for your own long-term care rather than being passed down to your children or heirs after you're gone. Fortunately, there are some estate planning methods that can allow you to deem certain assets untouchable. Read on to learn more about how a trust can assist you when it comes to asset protection.
What are the main types of trusts?
Trusts can generally be split into two categories: revocable and irrevocable. Revocable trusts allow assets to be freely transferred into and out of the trust by its owner(s) (generally either you, you and a spouse, or a child). You'll retain total control over the distribution of the assets in the trust until one of three things happens: 1) you pass away; 2) you voluntarily give up control of the trust; or 3) a court orders you incompetent to manage your own financial affairs.
An irrevocable trust allows you to place items into the trust and use trust income to support yourself, but will not allow you to remove items from the trust once they've been conveyed. Upon your death or incapacitation, the trust assets will be distributed according to your instructions.
Which type of trust is best when it comes to protecting your assets?
If you're primarily worried about avoiding probate and estate taxes, a revocable living trust may be your best bet. This will allow you to continue to place items into the trust as you acquire them (and remove them as you sell them), making the estate planning process much easier. However, this flexibility does sacrifice some asset protection, as assets placed in the trust within a certain period of time before you need publicly-funded nursing care may not be protected.
On the other hand, an irrevocable living trust can shield these assets for good. Because you no longer have the ability to remove these assets from the trust, they can't fairly be considered to be "available" to you; and although the income derived from these assets can be fair game for your creditors, the assets themselves should be protected.
For more information, contact companies like Family Focus Financial Group.