Fort Myers Attorney for Wills, Trusts, Estate Planning, Probate, Business Law, Litigation, Foreclosures

Does your estate plan include measures for protecting your assets against taxes and creditors? It should! Asset protection and estate planning are Siamese twins of a sort. While asset protection includes safeguarding your finances in the event of a foreclosure, bankruptcy filing or civil lawsuit, it also entails placing your assets in the proper legal format so as to avoid hefty estate taxes and protect your heirs from having to pay exorbitant inheritance taxes. So in that respect, asset protection is an important part of your estate planning. Likewise, proper estate planning takes into account the disposition of your assets upon your death, and has as its goal the protection of your assets against devaluation by estate and inheritance taxes, as well as protecting your assets against creditors.

Establishing a trust is the most popular form of asset protection. Your estate planning attorney should be well-versed in the various forms of trusts and should explain to you which ones actually protect your assets. Not all do. For instance, a revocable living trust will provide for someone to carry on your financial matters in the event you are mentally incapacitated; and in the event of your death it will most likely enable your estate to avoid being probated (there are extenuating circumstances such as individual state laws which require a probate proceeding in order to obtain state estate tax waivers, cut off creditors' rights, secure a homestead determination for a primary residence, and/or limit the time that a challenge can be made to the trust.) By avoiding probate, a revocable trust keeps all your financial matters private, out of the public record. But probate can only be avoided if your trust is fully funded – if all your assets have been properly re-titled and your insurance policies kept up to date with beneficiary designations.

Nor does a revocable living trust protect your assets from creditors. For that you need to establish an irrevocable trust. An irrevocable trust can be created by signed agreement or it can be established according to the terms of a revocable trust upon the death of the Trustmaker. There are many forms an irrevocable trust can take. The primary uses for an irrevocable trust as part of your estate planning is to reduce estate taxes, protect your assets and provide for charitable giving.

A revocable trust can be changed at any time through a trust amendment. If you become dissatisfied with the entire trust, it can be revoked completely or the contents changed entirely through an amendment and restatement. The key is that you still retain control of the trust and its assets. On the other hand, if you transfer assets into an irrevocable trust, you are giving over those assets to the trustee and beneficiaries of the trust so that you no longer own the assets. Therefore, they can’t be taxed when you die, because you no longer own them.

You can still benefit from the assets in an irrevocable trust however. By naming your family as beneficiaries, you can still provide your family with financial support, which is outside the reach of creditors. Some states even have irrevocable trusts called Self-Settled Trusts or Domestic Asset Protection Trusts which offer creditor protection and allow the Trustmaker to be a trust beneficiary.

Choosing the proper form of ownership for an asset can also offer protection against creditors, provide for devaluation of estate taxes and serve as a vehicle for transferring family wealth to the next generation. The limited partnership (LP) and the limited liability company (LLC) are the most common forms. A limited partnership consists of at least one general partner and one limited partner. The general partner is potentially liable for all the obligations of the partnership. The limited partner has limited liability. A limited liability company consists of one or more members which may be individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, other limited liability companies or other business entities. The members of an LLC are afforded limited liability similar to shareholders of a corporation and have pass-through taxes comparable to a partnership.

As you can see, it’s no easy matter to decide without the advice of an attorney. But it’s not something that should be put off. For instance, transferring assets at the start of a civil litigation (or even the hint of one!) with the intent to hinder, delay, or defraud a creditor constitutes a “fraudulent” transfer. There are laws in each state to protect a judgment creditor against such transfers and a court will simply order that the transfers be reversed and the assets turned over to pay off the creditor.

Don’t delay; begin protecting your assets today. Call the Gibbs Law Office at 239-415-7495 for a free initial phone consultation about asset protection strategies.

I was recently in a conversation over chips and salsa with a financial advisor who asked me about A-B trusts in light of the new interim federal estate tax laws which establish the exemptions for estate and gift taxes at 5 million dollars.

As I shared with him, this is a very tricky question because we don't know what will happen next year as the Federal government has declined to inform the public as to what direction they will go? I attribute this lack of information to the ideological battle that is currently waging in Washington.

In any event, it appears that the A-B trust may become useful for those with moderate to large estates in the near future but we cannot be sure for now. In any event, an A-B trust can be implemented effectively within a joint trust so for those of you with 1-5 million dollar estates who have separate A-B trusts, you might consider speaking with your estate planning attorney about updating your plan.

Until next time.

SJG