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CALIFORNIA ASSET PROTECTION TRUSTS: QUESTIONS & ANSWERS
First of all, a Revocable Living Trust generally does not provide asset protection. This upsets people at times because they really want protection and they have "heard" they can get it with a trust. We suspect people are confused because sometimes asset (i.e. creditor) protection is available with trusts, even with a revocable living trust. That protection is not available to the person(s) who set up the trust however. Rather, it is later available to beneficiaries (usually one's children), if there is a spendthrift clause – at a minimum– in that trust and those beneficiaries have very limited access to the trust's assets. Which really brings up how asset protection is achieved in the first place. People obtain asset protection by giving up the control and benefit of their assets. This occurs when a revocable living trust becomes irrevocable (for example, when the person who set up the trust passes away or some other triggering event occurs). What are some other triggering events? Well, during life, people sometimes set up an irrevocable trust and voluntarily give up the “direct” control and benefit of asset(s), to achieve certain goals.
So, first of all, the beneficiaries of your revocable living trust (again, usually your children) can get asset protection as long as they do not have direct access to your trust assets. Think about it like this: If your beneficiaries can't reach trust assets, neither can a creditor. Similarly, during life, an irrevocable trust can be established by you, where you give up the control and the benefit of certain assets that you transfer to your trust. Most of the time this is not appealing to people. Sometimes however, it is necessary to preserve a person's lifestyle and stave of bankruptcy-for example, for a person with disabilities who receives governments benefits. But, more commonly, irrevocable trusts are set up to reduce estate and gift taxes or as a means to obtain Medi-Cal and/or Veterans Pension Benefits to help provide for the long term care needs of seniors. That is, people voluntarily "give up" asset(s), so it is out of their “estate” and is therefore not countable by the government for purposes of obtaining important government benefits.
Of course, we would all like to fully protect ourselves from life's unforeseen financial predicaments. Unfortunately it is hard to fully insulate ourselves from lawsuits and the like. Still, there are steps which can be taken to help you sleep at night. First, to limit the chances of someone attaching your assets, purchase great insurance. You can begin by upping your car insurance limits. Make sure you are with a good insurance company and have at least a $1 million dollar umbrella policy. Similarly, if you own property, make sure you have great insurance on that property. For your health, make sure you carry excellent health insurance at all times. If you own a business (especially if it is a business with high risk), make sure you set up an appropriate entity like an LLC to house the assets of that business, and then run the business through that entity, properly – so that it is not later pierced and held to be invalid. These small tips will help limit your risk with regard to car accidents, health care costs, problems on property you own, and businesses you run.
As far as bankruptcy and divorce goes, those concerns are harder to address. So are tax problems/liens, etc. But these problems might be thought of as concerns that you have control over as opposed to the aforementioned issues that could happen as a result of events that are totally out of your control. If you have control, it is best to be prudent in your decision making. For example, prior to a second marriage, get a pre-nuptial agreement and be careful about who you marry. When making investments, you should probably be conservative, if you are worried about losing assets. You still could have medical problems and other unforeseen circumstances might occur, but exercising caution, carrying excellent insurance, and being conservative, will limit your chances of being personally liable for life's economic risks, while helping you preserve your financial future.
Now, to protect your legacy from your loved one's creditors and predators, you will need an attorney well versed in the area of asset protection trusts and creditor protection law. At Kaiden Elder Law Group, we pride ourselves at being leaders in the asset protection trust arena. That is to say, we routinely set up asset protection trusts that preserve the financial future for seniors who can, with proper planning, qualify for Medi-Cal and Veterans Pension Benefits. For children with special needs, we also set up Special Needs Trusts and help trustees navigate the financial, tax, and social security disability complexities that arise with such trusts. And because nothing is more important than the well-being and financial future of your family, we set up Personal Asset Protection Trusts that shelter your beneficiaries from creditors and predators. Finally, we regularly create Retirement Trusts which result in three to ten times larger gains for your family, while your retirement plans are protected from children's divorcing spouses, disgruntled business partners, foreclosures, bankruptcies, and even kids own spendthrift spending habits.