For most people, a Last Will and Testament serves as the foundation of their initial estate plan. As both their estate assets and their family grow, they may incorporate additional estate planning documents and strategies into that initial plan in order to address that growth. If you are at the stage of your life where you need to grow your own estate plan, you may choose to create a trust to help protect your growing estate assets. As the Settler of the trust you must appoint a Trustee. As the Harrison asset protection attorneys at the Law Offices of Kobrick & Moccia explain, it is not a good idea to appoint yourself as the Trustee of an asset protection trust.
If you have never before created a trust, it helps to first understand some trust basics. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Grantor transfers property to a Trustee, appointed by the Grantor. The Trustee holds that property for the trust’s beneficiaries, also named by the Grantor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Grantor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because your Will can always be modified up to the point of your death, a testamentary trust is always revocable.
What Is an Asset Protection Trust?
As the value of your assets increases, the potential threats to your assets often increase as well. While creditors are an obvious source of concern, there are a number of other potential threats to your assets as well, some of which you may never have considered. For example, your hard-earned assets could be at risk when you get older if you find that you need to qualify for Medicaid to help cover the high cost of long-term care. If you own valuable non-exempt assets, you will be expected to rely on those assets to pay for your long-term care bill until they run out, at which time Medicaid will start helping cover your bill. If you own a small business, your personal assets could also be at risk even though you incorporated your business. One way to protect your assets is to create an asset protection trust which is a specialized type of irrevocable living trust. Transferring assets into the asset protection trust you create can protect those assets from a wide variety of potential threats.
Can I Be the Trustee?
The overall job of a Trustee is to protect trust assets and to administer the trust terms found in the trust agreement. While it is understandable that you would want to continue to protect and control the assets you transfer into the trust you create, naming yourself as Trustee of your own asset protection trust would completely defeat the purpose of establishing the trust. The reason an irrevocable living trust is used to protect assets is that assets transferred into an irrevocable living trust become the property of the trust. That legal distinction is crucial to the protection of the assets held in the trust. Because they are now trust assets in the eyes of the law, the Grantor no longer has a legal interest in the assets held in the trust, meaning the assets are not accessible by creditors of the Grantor nor can they be reached to pay debts of the Grantor. Naming yourself as the Trustee, however, would completely negate that protection because the Trustee of a trust does have access to the assets held in the trust. That means that as Trustee, you could sell assets or otherwise benefit from the assets. If you are the Trustee, therefore, the law assumes those assets are still available to you to pay creditors or satisfy debts. So while it is possible to be the Trustee of any trust you create, it would not be wise to be the Trustee of your own asset protection trust.
Contact Harrison Asset Protection Attorneys
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding the creation of an asset protection trust, contact the Harrison asset protection attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.
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