Using Trusts to Protect Assets for Your Loved Ones

If you have a large estate, protecting your assets and providing for your loved ones may be your top priorities in creating an estate plan. Is an asset protection trust the best way for you to do that? Find out how third-party asset protection trusts work, and whether they will protect and provide for your loved ones.

What Is an Asset Protection Trust?

An asset protection trust can shield your assets from creditors and ensure that funds pass on to specific third parties as desired. People with a high net worth, people with dependents who rely on them for support, or people who have personal liability for business debts and obligations may find asset protection trusts especially appealing. The idea is that the funds you transfer into the asset protection trust no longer belong to you, so creditors cannot demand that they be paid using those funds. However, this also means that once assets are transferred to the trust, they must stay there. You cannot withdraw the funds to use them later.

Self-Settled Asset Protection Trusts

The protections of an asset protection trust can be enticing and you may want to take advantage of one for your own benefit. However, Florida law prohibits self-settled asset protection trusts. “Self-settled” means that the person who created the trust is also a beneficiary. Ultimately, while you can use an asset protection trust to provide for others, state law and public policy prohibit you from using the trust for your own benefit. Other states such as Alaska, Delaware, Utah, and Nevada, and some foreign countries, allow self-settled asset protection trusts, but they are prohibited by Florida courts. Creditors can still obtain a court-ordered levy on your interest in a self-settled trust to collect on their debt, and this typically applies to Florida residents who set up asset protection trusts in other states as well. While offshore trusts set up outside the United States are a viable option, it’s not one that our firm handles.

How You Can Use Third-Party Asset Protection Strategies in Your Estate Plan

Making certain that your assets go to your beneficiaries, instead of to the government or your creditors, is an important part of estate planning. While Florida will not grant asset protection to a trust for the grantor’s own benefit, you can use an asset protection trust to ensure that your assets will be used for the benefit of those you love. For example, you can set up an irrevocable trust and name your spouse as the beneficiary; this is called a Spousal Lifetime Access Trust. You can also set up an asset protection trust to take effect either during your lifetime or upon your death for the benefit of your children. These strategies can ensure that the debts you incur during your life don’t deprive your loved ones of the support they need after you are gone.

Creating an asset protection trust can be more expensive than other forms of estate planning, and funding an irrevocable trust restricts your access to your assets, but it can provide substantial protections for your loved ones if you have a larger estate or are concerned about potential creditors.

Alternatives to Asset Protection Trusts

An asset protection trust isn’t the only way to protect your assets for your loved ones’ benefit. Depending on your circumstances, and the needs of those you are providing for, you may also want to consider:

Spendthrift Provisions in Trusts

There are steps you can take to protect your assets from your beneficiaries’ creditors after you die. A “spendthrift trust,” prevents your beneficiaries from assigning, disposing of, pledging, or encumbering trust assets to a third party. Distributions are handled by the trustee based on the language of the trust. This shields the trust’s assets from the poor financial decisions of any one beneficiary. As long as the money stays in the trust, creditors cannot collect from it.

Medicaid Asset Protection Trusts

Special needs trusts, including Medicaid Asset Protection Trusts, can shield assets for individuals who have disabilities or medical conditions that may allow them to qualify for Medicaid benefits. Medicaid has asset caps and income tests that restrict who can receive benefits. You can build Medicaid asset protection into any trust that you establish for the support of your disabled loved one. A Medicaid Asset Protection Trust can set aside funds so that they won’t count toward the person’s income or assets, but can still be used for their benefit. While our firm does not perform first-party Medicaid planning, we can assist you with the creation of Medicaid Asset Protection Trusts for third parties.

Get the Help of an Asset Protection Attorney in Gainesville, FL

At Harrison Estate Law, our estate planning and asset protection attorneys are happy to speak with you about whether an asset protection trust is the right estate planning tool to help you protect and provide for your loved ones. Please contact us online or via email or call 352-559-9828 to schedule a complementary asset protection consultation. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call. We also have extended evening and weekend appointments available by request.