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The layman has some preconceived notions of what may offer the best asset protection. Surprisingly, most of the strategies commonly believed to protect assets do not, and some may even cause more harm than good.
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Best Asset Protection Strategies: Irrevocable Trust
An irrevocable trust has advantages of all of the above methods of asset protection with none of the pitfalls when properly drafted, executed, and funded. First, this asset protecting vehicle, like giving the assets to one’s children, gets the assets out of one’s name. After the assets are in the trust when properly drafted, executed, and funded, anybody suing cannot get at them, because the person that created the trust can’t even get at the assets. Furthermore, the children’s creditors don’t have access either. So the assets sit safely in trust waiting to be distributed to the beneficiaries (more on this later). Moreover, the assets in the trust won’t be seen by anyone trying to discover one’s personal wealth. This has the added bonus of privacy and discouraging would-be contingent fee lawyers from even taking on a case in the first place.
The irrevocable trust can also hold an LLC thereby doubling the LLC’s asset protection qualities. Now if a lawyer should try to pierce the LLC, they would only end up in the irrevocable trust. If the LLC is the only thing in the trust, then the creditor has nothing to collect. A separate irrevocable trust would hold the rest of the assets far away from the LLC and far away from creditors.
Like a revocable trust, an irrevocable trust can instruct the trustee who, what, when, if and how assets are distributed. Unlike the revocable trust, because the grantor can’t get to the assets, neither can anyone who wishes to collect from the grantor. These instructions are almost limitless and last long after the death of the grantor. Let’s say that a parent values education. They could put right in the trust that the trust will pay for education and if the child earns a college degree, then they get Â½ of the assets at that time and Â½ at age 35. Basically, the trust is flexible enough that a grantor could set up goals, objectives, or incentives just like if they were alive to see it.
There may be some more expensive ways to safeguard assets, but for the most bang for the buck, an irrevocable trust is the best asset protection for the average person. In fact, the irrevocable trust can be found in the estate plans of the super rich also. A good solid irrevocable trust can protect and provide for a family for years with the assets safely tucked away.