Do Irrevocable Trusts Really Protect You?
This is now officially QUESTION #1 coming in from visitors to my website! Apparently the new word on the street is that if you are in trouble and want to protect your assets, just give them all away! And better yet, give them away in this incredible vehicle called an Irrevocable Trust, which allows you to still have some control over what gets done with those assets and how.
And I must admit that this sounds like a great plan. I mean why not, especially if the objects of my generosity are my very own children or other close family members. On top of that, this type of protection can cost as little as FREE if you just transfer the assets outright. Even if you do want to have some control and use an Irrevocable Trust, since it is a simple domestic trust the cost can often run anywhere from $2,500 – $7,500 (pretty reasonable when you are talking about asset protection).
This does sound pretty good, so is there a catch? The answer is YES, there is a big catch. Consider the following:
- Giving all of your assets away out of the blue to your children, spouse or family is simply not a normal thing to do.
- When a judge sees that happen (outright or in an irrevocable trust) he/she will make a presumption that the gift was made to delay, hinder or defraud a creditor.
- This exposes the entire gift to a clawback by a judge.
- If the gift was outright, then the judge may simply bring it back (i.e. take it away from whomever you gave it to).
- If the gift was through an Irrevocable Trust, then the judge may invalidate the trust completely and remand the funds to the court, leaving you in a worse position then prior to the gift. (Worse because the job of finding and collecting all the assets has already been done for the court and the court doesn’t even need to take the assets away from you).
You can create an Irrevocable Trust, fund that trust, complete the gift, and leave all the assets right here in the good old USA. And if you follow the logic, and do not understand how the law really works, you may think that taking the time and effort to use an Irrevocable Trust somehow protects them in front of a judge. The irony is that often this just makes the job of the court and a creditor EASIER. You might as well just put a bow on that basket.
The Difference with a Full Asset Protection Plan
The most important difference is that in a true and well-structured asset protection plan, there is not a blatant gift made in the face of a creditor. In fact, this is a case where less is more. By taking legitimate steps to structure your estate and asset plan, you may move certain assets to legal tools such as The Bridge Trust® without these transfers either being, or possibly even more important, appearing, to be a clear violation of the fraudulent conveyance laws.
While giving everything you have away is not a normal action at all, moving assets into legitimate business and estate planning tools IS a normal action for someone to do, even when faced with a crisis. This is the key difference between the two strategies and makes all the difference when it comes to how a court will view your actions.
While The Bridge Trust® is irrevocable, it is a type of irrevocability in which you haven’t actually given your assets away. You remain the beneficiary of this trust and retain direct control until the assets are truly threatened. And if this trust is ever challenged you have the additional security of moving your assets away from the U.S. court, judge and jury (not available if you do a normal irrevocable trust).
To understand how an irrevocable trust really works, I recommend reviewing Key Concepts of Asset Protection #3: Irrevocability here:
Take Your Asset Protection Planning Seriously
The bottom line is that if you are serious about protecting your wealth, do your research online, and then when you think you understand the basics, or when you have reached the point where you are really confused by all of the conflicting information, pick up the phone and call the most expirienced attorney in this area (1-800-231-7112). It need not be me or my firm, but I strongly encourage you to call someone who can walk you through this. Remember, you are dealing with an incredibly important personal planning decision which affects your whole family, and going it alone is not a good option.
I recommend that you ask yourself what your goals truly are. If your answer is that you really want to protect your wealth, then I suggest you take a pass on any option which offers only the illusion of security and choose the one which will provide you with true protection.
In 30 words or less, and in simple language, what is an APT exactly and how much would it cost to set up?
An APT (Asset Protection Trust) has specific terms called “spendthrift provisions” which limit access to the trust assets by creditors thus protecting assets for beneficiaries. It is extremely effective when done right.
I do not want my husband to benefit from my assests, can I exclude him from my Trust where I am a settllor and my children beneficiaries. Can I donate to the Trust all assets in my maiden name including the house which the familly is staying in? If I divorce, are will my assests be protected from my husband.
All of this depends on your state and the nature of your current assets. This is a question for an Estate Planning attorney in your area.
I was wanting to know more of the mechanics of an irrevocable trust. Amending them, changing beneficiaries, terminating etc. Not trying to protect assets from a potential creditor
All trusts are governed by the ‘deed of trust’ which is the document itself. The drafting possibilities are endless, so it is not possible to say what you can and cannot do without reviewing the trust itself. Irrevocability simply means the trust itself cannot be revoked; however, it may not necessarily limit changes of beneficiaries or distribution terms. You should have your trust reviewed by an attorney who can answer your specific questions.
thank you for the insight. I am 50 yo and have one child now 25 yo. what is the best way to protect my assets so he can get what I have ..house, investments, all belongings if I ever have to go into a nursing home (i work at one), so they are protected from medicaid, or in the event that I die?
You are talking about Long-Term Care, or Medicare, planning. This is a specific area of legal practice and there are many resources available. The strategies vary, but basically involve you giving away your assets before you need nursing home care. This could be done outright to your kids or in trust, or even inside an entity like a Limited Partnership. What the best course of action for you is depends on your specific situation. This is definitely a topic for a qualified attorney.
Will states that all assets be divided equally to all living children . This would require selling of the home. This would require probate of the will which is so expensive. Would irrevocable trust. avoid that or would that be more expensive than Probating the will?
A trust in general is easier to deal with at death than a will. This is particularly true in certain states such as California, where probate fees are fixed and begin at over 3% of the estate. If the person is still alive and capable of changing their plan, then a visit to your estate planning attorney is your best bet. If the person has already died, then you have to live with what they have and if its a will, then you must probate it.
Does a revocable trust become irrevocable upon a person’s death?
Generally yes, a Revocable Living Trust becomes irrevocable upon the death of the Settlor. The terms of the trust itself will determine how the assets must be managed or distributed.
How can an irrevocable trust from an LLC be changed by the trustee to take back from the person on that trust?
I am not sure I understand this question. But if you are referring to how an irrevocable Trust can or cannot be changed, then you must look at the terms of the trust itself. There is no fixed rule about what can be done in a trust, the trust document itself determines the rules. You need to have the trust reviewed to answer your question.
Perhaps someone can help me on this. Years ago, when I was a minor my father created an irrevocable trust for me. My mother was trustee, but she never knew that.Then 14 years later, my father created another irrevocable Trust for me. He made himself trustee of this one. He started the second trust w/shares in his last corporation. Corporation sold 2 years later in 1996 and netted $49 million. Confirmed that w/forensic accountants I hired. That Trust lost $150K and paid $400K in taxes, on it’s sole asset that “netted” $49 million in a $63 million cash sale.. My 2nd trust went to a wealth management company, but the accountings show it wasn’t that trust but an agency account with my name on it and with a different EIN number. The wealth mgmt. company confirmed it was an agency account and not my irrevocable trust. The account is transferred to my father’s investment adviser in 2001, loses $700K and becomes the 2nd trust again, back to matching EIN numbers, according to their accountings. Two years later a Family limited Partnership is created. Four members (found the hidden document) my trust, my sisters trust, my father’s LLP and one very large trust simply labeled Irrevocable Trust. I called Schwab where apparently all these accounts are held now, all with different EIN numbers and discovered the 2nd trust is there, the agency account in my name is there, the Family partnership is there and the first trust was there and transferred to my father’s investment adviser, who claims he knew nothing about that trust. Both my father and his investment adviser said my father is General Partner of family partnership. I called the IRS gave them EIN number and they asked who limited partners were. I told them and they stated my father’s adviser is GP. Schwab told me by mistake that the agency account in my name was the strangest thing they’d seen and had around 50 accounts under it. Then they clammed up, knowing they shouldn’t have given that information out. My father has created trusts and custodial accounts for my children, but won’t give accountings on any of these accounts, nor have we seen any monies. My sister and I were bought out of the family limited partnership in 2010 after we started asking questions. The only one who can give me accountings is of course, my trustee, my father. I’ve never seen 1st irrevocable trust document, nor received any money from it, never have seen agency account document nor even knew I had an agency account in my name. Have seen 1994 trust, which held multi millions and seems to be almost depleted now. Have no idea why 50 accounts are under my name in an agency account. They claim they never created a family limited partnership document, have shown no accountings and lied in everyway. Now, all these entities are still in existence, except 1st trust and they all have different EIN numbers. I entered my agency account EIN numbers under hidden treasury stocks and received a hit. My big concern here is there are multi millions or have been in my name and I could owe huge money to IRS on monies and accounts I never received anything on. My father’s been involved in mergers and acquisitions, has all these accounts under mine and my children’s name and these are only the things I’ve found out in last 4 years. Perhaps, I sound stupid for not checking earlier, but all I ever knew was I had one irrevocable trust from when I was a little girl and that’s all I needed to know. My father is secretive and never talked about money, so we were brought up that way. Now, that I’ve found this all out, I’m extremely concerned about the IRS, money laundering. I simply have no idea, but I know something’s not right. Does anyone have any knowledge on things like this? I really don’t. Any help would be appreciated
So what is the option that provides true asset protection (from creditors, courts etc etc) ???
Thanks,
Stevce
This is a good question. The answer depends on the assets to be protected. If you sole asset is a home in Florida or Texas, then the state homestead exemption is about as good as it gets and is unlimited in value in those 2 states. If you have IRA’s and other qualified plans as your primary asset, then that may also be enough without doing more. However, if you have cash, investments and real estate which are just in your name, then you can dramatically improve your protection by utilizing asset protection tools. These include LLC’s, Limited Partnerships and the Asset Protection Trust. The very best way to know what is appropriate in your particular situation is to have an analysis done by an experienced and qualified Asset Protection Law Firm. Information is the key to helping you make a good choice around protecting your assets.
I have a friend who 5 months ago was diagnosed with stage 4 cancer. The only thing she has is a mobile home sitting on 5 acres of no good land and the trailer was bought by boyfriend. They both live together. Now they both lost there jobs in early April 2013. She is getting worse and neither have any money. Is there a form they could use to just transfer her small assets on her death? I am not a relative just a friend who has no money but, had some education as a paralegal. I want to help them as she is loaded with tumors after months of Kemo that did nothing to help her. Any help in this matter will help. They live in Missouri
She can title the property as Joint Tenants with Right of Survivorship (JTWROS) and at her death the asset will pass to whomever she added to the title without probate.
When I was diagnosed with terminal brain cancer, I placed money in an irrevocable trust (Florida) for my teen-age daughter. My mother is to permit her granddaughter to have access to some money at HSchool graduation and college graduation-but not the full amount until the girl is 30. Does this money (no CDs, bonds, etc.) in the trust earn interest at all?
The Trustee is responsible to invest the money as per the terms of the Trust itself. Normally the Trustee would invest the money in something, even if just a CD or saving account and earn some interest.
Currently we have an LLC protecting 640 acres, now the manager wants to gift his share of the LLC to grand kids in the form of an irrevocable trust. My plan is to dissolve the LLC when the manager dies and create a new LLC with my children who will now have their portion from him in an irrevocable trust. My questions is can property in an LLC be put into irrevocable trust and then into another LLC. I am very confused my what he is trying to do as he wants to protect inherited farm ground from spouses. If spouses are not in the LLC can they get the asset through a divorce?
Lily this is a complicated question. More information would be needed, but I would definitely suggest local counsel to consult on the changes and make sure nothing gets complicated or done which would be difficult to undo later.
I am doing my own accounting on my small business i have an irrevocable trust where I am but my problem is i don’y know if this is an expense to take on consideration or an asset (Im not sure where the account belong), can I have some help here. I appreciate so much your opinion
Trust accounting is not necessarily simple. I would seek the advice of a CPA. It is not possible to answer this type of question without looking at all of the details of the Trust and business.
Can an irrevocable trust be amended as to beneficiaries and intent for funds?
Depending on the provisions of the Trust, yes it may be amended. In the case of an Irrevocable Asset Protection Trust, the trust may be amended with the consent of the Protector as long as there are no Events of Duress (threats to the Trust assets) in process.
I own my home and want to protect it from law suits, and or judgements. I have one child that will receive all my assets. I want this here for her when i pass. Whats the best plan and what would the fees be to ensure it’s been completed properly.
Mike, there are a few options for protecting your home. The first question is what state are you in. After that we look at the Homestead and the value of the home as well as your other asset to determine the best course of action. This could include setting up a trust to hold the home for your protection and the protection of your kids. This would be a form of an Asset Protection Trust, as opposed to a normal estate planning Revocable Living Trust.
I am the beneficiary of a special needs your available trust my mother made to trustees my son who lives with me and my cousin now I have had to get a protection from abuse order on my son that was living with me that is a truck one of the trustees how can I have him removed and just my cousin remain as trustee and does my mother have any right to revoke my ear available trust
Is there anyway too fix a legal mistake that I made when my special needs child was a minor she is 26 now. When she was a young child we settled an infant compromise order a irrevocable trust was set up. When my child was 17 i asked a legal malpractice lawyer about guardianship at that time he went to court asking for me too have complete guardianship and he put the trust in my daughters name which has caused much due financial and much stress in our home lawyers coming and going and want too be paid,
There may be a way to fix it; however, this is dependent on the trust drafting itself. I would recommend you look for a local attorney in your area who handles family law, and estate planning to review the document and make a specific recommendation to you.
I own a home that my mother left to me after her passing and it’s my only asset with a lot of equity. I have 4 adult children that I would like to leave this home to them when I die so how can I protect this asset from lawsuits or judgments. I’m considering transfer title of home or an irrevocable trust. Please advise
MY MOTHER TOLD ME ABOUT TEN YEARS AGO AS I WAS VISITNG HER IN FLORIDA THAT I HAD BEEN DISINHERITED TEN YEARS PRIOR MY HUSBAND AND I ASKED MY FATHER FOR A LOAN FOR OUR BUSINESS. MOTHER TO HER DYING DAY ABOUT 3 WEEKS AGO, SITLL BELIEVED WE DID EVERYTHING IN SPITE. MOM WAS VERY VERBALLY ABUSIVE AT TIMES AS SHE OBSESSED ABOUT HOW WE TOOK ADVANTAGE OF THEM. MY DAD SAVED US. MOM OBSESSED THAT WE TOOK A $40,000 LOAN FROM DAD TO BE PAID BACK IN TWO MONTHS. NO WAY! AFTER BEING HARRASSED AND THREATENED VIA PHONE, MY HUSBAND WENT TO A BANKER HE KNEW AND BORROWED ENOUGH TO PAY THE LOAN OFF W MY DAD. IT WAS PAID PRIOR TO OUR AGREEMENT OF 5 YRS. MY PARENTS DID NOT LOSE ONE DIME. DAD DIDN’T EVEN WANT TO DEDUCT THE INTEREST.
THE OTHER ISSUE HAS TO DEAL W LIFE INSURANCE AT THE SAME MEETING MOTHER WAS AT AND THE FINANCIAL BANKER SUGGESTED MOM TAKE OUT THE $50,000 LIFE INSURANCE FOR SOLE PURPOSE OF PAYING INHERITANCE WE WERE OWMER AND PAYER.OF THE LOAN.. THE LOAN NEEDED TO NE REWRITTEN, LOWERING THE VALUE TO 430,000 because with w premiums was getting expensive, we thought mom needed to sign it asap. mom was in florida and i signed her name in my busy office. the poop sure hit the fan then. supossedly dad checked that we had paid the premiums for many years equalling18,ooototal loss.. mom was livid. my husbband was mad at himself for not knowing his job well enough, since we were owner with moms ok and we paid all premiums. and the anount was going down by $20,000 dollars. never was a need for my mothers signature. she didnt believe anyone. my parents had to claim me and say i was getting a $1,00 making sure i could not contest it, mom died 3 wks ago, i hsve not seen the trust, i never liked my sister so mom and judy got me good. can i contest? involved is a house in FL asking orice would be $300,000.00 and the condo trailer about $35,000. two cars and some money from stocks which i think is approx $60,000. i get a dollar.
Dear Janet. The issues you mention in your comment are all related to estate planning. I recommend you to schedule a consultation with a local estate planning attorney. Posting a concise question at the legal forum avvo.com may also put you on track.
Can a partner in a business, steal all he can and then take out an irrevocable trust to protect him from paying his bills or judgements. How long do you have to have the trust before it protects him
No a partner cannot ‘steal’ assets and then protect them. However, the stealing part must be established first. This is a good case for a local attorney to review your corporate records and determine a course of action.
can one of the parties get out of being in an irrevocable trust after it’s filing. I am part of a couple that created an irrevocable trust and now we are divorcing and I don’t want to be in a trust with this person anymore do I have grounds to have the trust ended?
This is very likely a way for you to be disconnected from the trust. I would recommend you have an attorney in your area review the document and make a recommendation to you.
I have 31 acres of farmland I am considering putting in an irrevocable trust. I will be selling the land in 4 years to my nephew. Will I be able to draw monies from my trust to live on if the money for the purchase of the sale is put into the trust?
I believe my deceased husband was listed as a beneficiary to an irrevocable trust, This trust would have been established around 2000, We we married in @ 1995. He had one child, who he disinherited in his will, leaving his assets to me and in the event of my death, my daughter.
We live in a community poperty state also. Do I automatically have claim to his share of said trust
when the person whon created it dies?
It would depend on the terms of the irrevocable trust of which your husband is a beneficiary.
Hypothetically,the assets of this trust were left in equal shares to all syblings and children. If this was true with no other contingencies, would his share fall to me as his sybling’s wife? I understand specific wording of the trust could eliminate my claims but I strongly suspect this was not done as the creator of the trust was unaware of our marraige at the time of it’s creation and either he or his children have questioned me about our marriage and the terms of his will since his death.
They seemed intent on finding out if I would provide for his 45 year old child from a prior
marriage. I have no assets of my own and found this perplexing, unless I have some claim to this trust. I barely provide for myself and they are aware of this.
Please advise as should a claim be possible I need to seek legal counsel and can’t afford to do so unless I know In have a reason to do so.
I advise you to schedule a consultation with a local estate planning attorney. A lot of attorneys offer a free consultation. Good luck!
My house is included in my revocable living trust. Should an accident happen and someone wished to sue and attach my property, does the trust protect it? If so can I assume I could reduce the amount of liability coverage on my house?
thanks
Terrie Courtlander
A revocable living trust does not protect your home, or on fact any assets of the trust, from liability claims. It is an estate planning vehicle only and is my considered asset protection.
I am interested in putting my home by itself in a irrevocable trust. If I do this today and someone files a law suite two years from now, how long does a court look back to find your assets?
[…] to Lodmell.com, the cost of setting up an irrevocable trust can run anywhere from $2,500 to $50,000.
My Husband’s children recently added property to their Mothers Irrevocable Trust. Documented as Trust Deed, Undivided fifty percent. His children are listed as Trustees. So we can not sell lease or do any thing without their content, correct? They dated this document May 21, 2001, was the date that their Mothers Trust was dated. They tricked my husband into signing this document, (Husband has mid stage alz) date notorized was 9/14/2012. Is that legal? I am his second wife, they did this with out my knowledge. Help
Dear Janet,
Thank you for visiting lodmell.com. I am sorry to read about your situation. I would advise you to seek council with a local and experienced Family Law – Estate Planning Attorney. You also may try posting a brief and comprehensive question at avvo.com. Very likely, a local attorney with expertise in this area will reply and put you on track.
Good luck.
Our Mother passed away in June of 2012. There was and irrevocable trust set up by her in 2002 in which one of my brothers is the trustee and I was the next person to have this position. Are the two of us to share any decistions made with regards to tis trust?
A Michigan law MCL 700.2404, as one would read, states that a spouse or all children shall be given equal share of the estate. Does this law (?) make the irrevocable trust null and void?
Point being is that the trustee is getting the house and according to the trust the other children shall split the personal asets equally. At what point does the irrevocable trust have full authority? What are the results/ramifications of a trustee stealing and lying with regards to personal property of the Deceased?
My dad recently passed and he had a Irrevocable Prepaid Funeral Benefits Contract.
He paid the full amount at one time for $6210.93. The bill the funeral home gave me
shows the amount to be $7230.18 . The director had me sign a paper so he could pull
the funds out. Would the trust earn interest and can the funeral home keep it? The
contract reads that any remaining balance is to be paid to The Benefiiciary’s Estate.
My mother had a settlement and we put her monies in a Medicaid payback pool trust. We could use it for anything e
We needed for her. Example: furniture, a bed, nursing care, sitter, we got her a tv, a little heater, we built a. Room on to the house to accommodate her after her illness, a deck so we could take her outside, a handicap accessible van, wheelchair, lift chair…. You may not use it for food, clothing, or mortgage . If your love one dies and any money is left it is returned to Medicaid.
my husband and i have just been married 2 years and before we met he put his house in an irrevocable trust leaving the house to his youngest daughter at the time of his death. She now tells him all the time we have no right in the house and that it is hers. she said her name is now on the warrenty deed and she will do what ever she wants on the property. do we have any recourse to stop this threat. it said in the papers he could even rent the house out and keep any and all funds he would get from it. also do we have to pay the taxes too.
Can an irrevocable trust be set up and more assets added to it down the line or in time.Can person who sets I’ve trust have a salary for himself built in to it. If the trust earns monies how are the taxes paid.if the monies are in tax free bonds does taxes have to be paid. How many generations can it go for.
Please give me some answers or tell where I may find them
Thank you
Powel666@hotmail.com.
I am the trustee for the family irrevocable trust. I am getting ready to finish paying off all the bills and then distribute the remaining funds to the individuals listed in the trust. Each individual should receive approximately $20,000. What are the tax implications for these people? Is the trust itself going to be taxed, as I needed to get a EID #?
I am in the process of receiving a large sum of money from a business transaction. Is it best to put the proceeds in a irrevocable or revocable trust for tax purposes?
Can a person gift farm lane worth approximately 3,200.000 to her children to avoid gift or estate taxes?
We have a motel operating as a C corporation and all the shares are owned by the corporation. This corporation is held in an irrevocable trust in California. We want to sell it but someone has recenlty filed a lawsuit against us. My question is will this prevent the transfer? If we can indemnify the buyer how can we protect the proceeds of the sale if it is even posible.
My husband receives a variable amount monthly from an irrevocable trust set up by his mother in a Wells-Fargo bank. The bank charges outragesly fees $700 and he gets less than $100. There is over 4M in the trust. Is there anyway to see that he gets a livable amount monthly? His brother also receives the same amount. The bank states they are allowed to take that much as a fee.
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My sister and husband have an irrevocable trust and are now considering a legal separation or eventual divorce. What happens to the trust and is she entitled to half his earning during the separation?
What is the cost of an irrevocable trust?
If your attorney is telling you to “GIFT” your assets into an irrevocable trust, you should find another attorney because he is not an expert. In fact, irrevocable trusts do work. They are by far and away the strongest protection available. I can only say this because I personally have done it for myself and clients in front of a judge, in real live situations. 100% successfully. 30 years not a single client disappointed.
My wife died. Her revocable trust I believe automatically became an irrevocable trust 1.a.w. irs code. ? I am the trustee and beneficiary. Can I use the dividends and interest from this trust?
There is planning related directly to medicaid costs. It typically involves gifting your assets away either outright or in a specially designed trust which would be exempt from medicaid. This is specialized planning and does relate to the state you are in. I would recommend you search for an attorney who specializes in this type of planning in your area.
Is there any way to save my mom and dad’s house if she has to go to the nursing home, we have been told that if you can’t pay they will make you do a reverse mortgage.
Is the look back period for medicaid 5 or 6 years?
What trust do I set up now, so I dont pay huge taxes?
wife and husband put their house in an irrivocable trust. What happens when both husband and wif pass? What happens to the house?
My husband and I have an irrevocable trust with both of us as trustees. Does this give us any protection of assets?
It depends on who created the trust and who the beneficiaries of the trust are. The answer will also depend on the types of liabilities you are concerned about.
I want to remove my one daughter from the irrevocable trust
In my divorce we fixed my part of the assets to children with husband being over the irrevocable trust. The divorce was finished in 1983.
Since then he has sold the property involved. How can I check to see if he put my part in trust or spent.
What is the best way to protect my assets in case I may
need Medicaid in the future?
You should look into a Medicaid Trust. These types of trusts can provide you with some income and still allow for qualification of Medicaid. The trick is that in most cases, a Medicaid Trust needs to be established five years before one applies for benefits.