What is an Irrevocable Trust? An Irrevocable Trust is a trust that contains at least one provision that the Trustmaker does not have the power to modify by themselves. It is possible for the Trustmaker to retain a few powers, but do not have the power to change everything. 

When we say “asset protection,” we are referencing a variety of estate planning goals that could include protecting your assets from taxes, long-term care costs, lawsuits, creditors, or divorce. There are many asset protection techniques that involve the use of irrevocable trusts, but they must be carefully drafted and implemented. 

Irrevocable trust

What should I be careful about if I want to use an irrevocable trust to protect my assets?

First, the drafting estate planning attorney must include special language regarding the nature and use of the assets. Not all irrevocable trusts are asset protection trusts or the irrevocable trust may only provide protection in limited circumstances.

Second, you cannot enter into asset protection planning in contemplation of a lawsuit or defrauding your creditors. If you already know you will be sued or that there is a likelihood of being sued, then your attempts at asset protection will probably not work. Similarly, if you have already incurred a debt, it’s likely that your attempts at asset protection will not protect your assets from your creditor or in a bankruptcy proceeding.

This, of course, is a very simplified analysis, and everyone’s situation will be different. 

For example, if you transfer your assets to an irrevocable trust when there are no pending or even threatened lawsuits on the horizon and you simply want to plan for your family’s future well-being, then you are not breaking any rules. On the opposite end of the spectrum, if you make the transfer just before filing for bankruptcy or immediately after having a lawsuit filed against you, then you have probably made a transfer that will not hold up in court. 

In determining whether a transfer to a trust should be considered fraudulent, a court is also likely to examine other factors, such as whether the transfer left you with no other assets. 

For example, if you transferred such a large portion of your assets to the irrevocable trust that you can no longer pay your current debts and obligations, this would be considered “insolvency” and the transfer would likely be deemed fraudulent. In such instances, any creditors would likely be able to have the transfer set aside so that the assets could be taken and sold by the creditor.

Finally, in addition to requiring special language, there are certain rules about how an irrevocable asset protection trust should be set up. 

For example, you cannot name yourself as both the beneficiary and trustee of the trust. The courts and the IRS will also look at the level of control you retain over the assets in determining whether or not they should be considered “yours.” 

There are exceptions to this, such as charitable trusts and children’s trusts, but all trusts must still be drafted with the right language to qualify for protection. You do not want to go through the process of establishing an irrevocable trust and transferring assets to that trust only to find out your goal of asset protection has not been met. This is why it’s important that you meet with an experienced estate planning attorney that understands the rules of asset protection planning. 

How can I get started with asset protection planning?

If you’re ready to talk about asset protection and set up a trust, our team of experienced estate planning attorneys are here to help. Call our office today and our team will get you started in the right direction, 919-443-3035 or schedule a free needs-assessment call via our website

 

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning
2 Comments
Alton, there are various planning techniques to help one prepare for the possibility of future nursing home care and potentially protect or maximize your assets, including the use of irrevocable trusts, but they must be set up with special care. We’re hoping to launch a second blog soon that will expand into nursing home and Medicaid planning in more detail. It is a very nuanced area and I highly recommend that you work directly with an estate planning or elder law attorney if you intend to engage in such planning.
by Jackie Bedard February 4, 2019 at 01:35 PM
My 89 year old mother is widowed and in good health. Her home is without any mortgage. I thinking it may be a good idea to place the home in a trust to protect the asset in case she requires nursing home care. There are no other assets that need protecting. Whats your thoughts and would you complete the process? Thanks
by Alton Pierce February 4, 2019 at 01:35 PM
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