The Modern Asset Protection Trust for Peace of Mind During Retirement

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning

“Asset Protection” is a broad term that can may include protecting assets from lawsuits, creditors, divorce, taxes, long-term care costs and more. If you are nearing retirement or are already retired, you might find yourself worrying about financial security if a catastrophe were to occur. That’s why the Modern Asset Protection Trust has become a popular tool in our estate planning toolbox.  

How the Modern Asset Protection Trust Works

The idea of an Asset Protection Trust might seem intimidating at first, but our clients find them pretty easy to operate once we guide them through the design and implementation of the plan:

  • You decide which assets you will transfer into the Asset Protection Trust, then think of a trust like a rule book. You create the rules, pick the beneficiaries of the trust, and appoint a Trustee to carry out the rules.
  • If you choose to, you can have direct access to all of the income from the Asset Protection Trust.
  • The Trustees (either you or someone that you selected) can give principal to the beneficiaries. [And in theory, the beneficiaries can then use those funds for your benefit, if necessary.]
  • You can establish rules for how the funds can be spent when the Asset Protection Trust is created.
  • You choose the Trustee, the person in control of the Asset Protection Trust (and in some cases, you may be able to appoint yourself as a Trustee).
  • Trust management is relatively straightforward and can be streamlined if all assets are in a brokerage account.
  • The Asset Protection Trust can have a “Trust Protector” (often your attorney) add a layer of oversight and protection to make sure your wishes are properly carried out.
  • You (or Trust Protector that you selected) can change trustees and/or beneficiaries.
  • You can transfer your home to the Asset Protection Trust and continue residing in it.
  • The Asset Protection Trust can be designed so that no separate tax filings are required—instead, any income or capital gains will continue to be reported on your own tax returning keeping things as easy to operate as possible.

Benefits of a Modern Asset Protection Trust

An Asset Protection Trust designed for modern times can allow you and your family to reap the following benefits:

  • The Asset Protection Trust can protect assets from future lawsuits;
  • After 5 years, the assets of the Asset Protection Trust are no longer countable for Medicaid purposes if you should need Medicaid assistance for nursing home care.
  • The Asset Protection Trust keeps the assets protected from your family members potential risks such as creditors, spouses, bad marriages and divorce, health issues, etc.
  • The family receives significant income tax advantages by using an Asset Protection Trust rather than outright transfers, such as:
    • The income is taxed to you, rather than to the family members.
    • The family receives a step-up in basis on the value of the assets when you pass away. As a result, your family does not have to pay capital gains income tax on the increased value of the home or asset.
    • If the home is sold during the senior’s lifetime, you are still eligible to receive an exemption of up to $250,000 of capital gains income ($500,000 if married) on the sale of a primary residence.
  • The Asset Protection Trust allows you to shelter the proceeds if you sell your home, giving you flexibility in case you wish to downsize or move to a senior community.
  • You can give gifts from the Asset Protection Trust to children, grandchildren, or other family members without it creating penalties for Veteran’s benefits eligibility or Medicaid eligibility.
  • The Asset Protection Trust avoids Medicaid estate recovery upon your death.
  • The assets within the Asset Protection Trust are also protected from lawsuits and creditors, such as if the senior causes a catastrophic car accident.
  • Upon your death, the assets within the Asset Protection Trust passes the trust assets to your family without having to go through probate.
  • The Asset Protection Trust is also a primary estate planning tool for leaving a legacy for their family.
  • The Asset Protection Trust assets can pass to your family members in such a manner that your beneficiaries’ have access and use of the assets, but the assets are also protected from your beneficiaries’ future lawsuits, creditors, divorce, or nursing home expenses.

We're Here to Help!

Don’t leave yourself or your loved ones stuck dealing with the financial aftermath that a lawsuit, medical bills or long-term care costs, or unexpected tragedy can bring to your family. Contact Carolina Family Estate Planning today at (919) 443-3035 or fill out our online form to speak with someone about registering for a seminar or a Vision Meeting. You may also wish request a free copy Jackie Bedard’s book, Estate Planning Pitfalls: The Twelve Most Common Threats To Your Estate & Your Family’s Future.