Living Trusts & Creditors
One of the primary concerns in estate planning is losing assets to creditors before the assets can be passed on to beneficiaries. Because of this fear, many set up living trusts to help protect their assets. A living trust is a type of trust arrangement that you set up and fund while you are still alive.
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Revocable Living Trust
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A revocable living trust is a common type of trust. With this kind of trust, you set it up while you are still alive and you can change the terms of the trust at any point. When you use this trust, your assets can still be accessed by creditors in certain situations. Creditors can take assets out of your revocable living trust if they win a lawsuit against you.
Probate Protection
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When you put your assets into a revocable living trust, it circumvents these assets from the probate process. When you die, the assets will be transferred to your beneficiaries without having to go through probate. This can actually work against you in your estate when it comes to protecting your money from creditors. With the probate process, your creditors have to file a claim for part of your estate by a certain time. If they do not file, they lose the ability to collect from your estate.
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Irrevocable Trust
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While the traditional revocable living trust does not protect your assets from creditors, irrevocable living trusts can. Your revocable living trust cannot be altered once you set it up. When you put assets into an irrevocable trust, those assets are technically removed from your estate. Since you cannot touch them any longer, they are no longer considered to be your property. Creditors cannot collect from the irrevocable trust at that point.
Assets
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Irrevocable living trusts can protect many different types of assets. For example, you can put cash or investments into the trust for your beneficiaries. Any income generated from the investments can also go back into the trust. Real estate and other physical property can also go into the trust. When you transfer physical property into the trust, you have to change the name on the title or deed to the name of the trust.
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