People often ask us if Estate Planning can protect their assets. This is an understandable question. For most people, the concern is not only about the assets themselves, but also about protecting their family and knowing they have planned ahead.
The answer depends on what you want protection from and the type of planning you have in place. Depending on your situation, you may want to keep assets out of probate, protect them from future liabilities or creditors, a potential divorce, or preserve certain assets when qualifying for Medicaid.
Each of these goals requires a different type of planning, which makes it easy to misunderstand whether an Estate Plan can or cannot protect your assets.
We will walk through questions we often hear and mistakes we help families avoid so you can make the best decisions for you and your family.
You do not have to sort through these questions alone. Cornerstone Legal can review your current Estate Plan or help you create a new one, explain your options, and help you determine which protections make sense for you and your family.
Contact us at (517) 708-2222 or email Katrina@CornerstoneLegalPLLC.com.
Common Questions About Asset Protection Planning
Does my Living Trust provide asset protection from my creditors?
No. You are the beneficiary of your Living Trust and retain control over any assets that you fund into your Living Trust. These assets are still available to your creditors during your lifetime. This makes a Living Trust useful for Estate Planning and probate avoidance, but it does not shield your assets from your existing creditors.
Does my Living Trust protect my assets from a Medicaid spend-down?
No. You are the beneficiary of your Living Trust and retain control over any assets that you fund into your Living Trust. As a result, you may be required to use those assets to pay for your care before qualifying for Medicaid. For more information on Medicaid planning please read our blog Top Ten Things to Know If Your Loved One Needs Medicaid.
Can my Living Trust provide asset protection from my child’s creditors?
Yes. Your Living Trust can include provisions for your child to receive their inheritance through an Irrevocable Trust instead of receiving distributions outright. Any principal assets that remain in an Irrevocable Trust are protected from your child’s creditors. However, if your child receives a distribution of income or principal from their Irrevocable Trust, the protections no longer apply.
Can my Living Trust provide asset protection from my child’s future divorce?
Yes. Your Living Trust can include provisions for your child to receive their inheritance through an Irrevocable Trust instead of receiving distributions outright. Any principal assets that remain in an Irrevocable Trust are protected if your child is going through a divorce. However, if your child receives a distribution of income or principal from their Irrevocable Trust, these assets may be treated as “marital property” and the protections no longer apply.
Are assets that I inherit directly as a named beneficiary protected from my creditors or a future divorce?
No. If you are named directly as the beneficiary of an asset as opposed to the asset naming a Trust as the beneficiary, the asset will be distributed to you personally rather than being held in an Irrevocable Trust. Once you receive a distribution of an asset as a beneficiary, the asset is directly under your control and is not protected from your creditors or a future divorce.
Can an LLC for my business provide asset protection for my personal assets?
Yes. When your LLC is properly established and your personal and business assets are kept separate, the LLC can help protect your personal assets from business debts and liabilities. If you maintain separation and suffer liability related to your business, ONLY your business assets are exposed. Your personal assets are protected from any liability of your business.
Can a Living Trust protect my assets from probate?
Yes. Assets that are properly funded into your Living Trust will not have to be administered through probate. Just creating a Living Trust is not enough though. You have to make sure that all of your assets are either owned by your Living Trust, or that your Living Trust is named as the primary or contingent beneficiary. For more information on beneficiary designations, please read our blog Common Beneficiary Designation Mistakes That Can Undo Your Entire Estate Plan.
Common Mistakes That Do Not Provide Asset Protection
Holding assets jointly with someone other than your spouse
Joint ownership may seem like a simple way to give someone access to your assets, but this can create unintended consequences. The joint owner will have access to your entire asset. For instance, a joint owner on your savings account could access the account on their own and withdraw the entire balance. Additionally, if the joint owner of your assets has debts or is facing a divorce, your account is their account. You could lose your jointly-held assets to your joint owner’s creditors or soon-to-be ex spouse. Finally, any joint owner that you name on your assets will own those assets outright when you pass away. This could contradict your intentions, your Estate Planning documents, and even a prior beneficiary designation you made on that asset.
Naming minor children as beneficiaries on your assets
Naming a child directly as the beneficiary on your assets may seem like the easiest way to provide for them, but a minor child cannot receive funds directly. A conservatorship would likely need to be opened with probate court to appoint someone to receive and manage the assets for the benefit of the minor child. A conservatorship may not offer all the protections that could have been included through proper Estate Planning with a Living Trust, and will cost your family money for the duration of the conservatorship.
Owning business assets in your individual name
Owning business assets in your individual name exposes your personal assets to the creditors and liabilities that may arise for your business. When you don’t treat your business assets like business assets by maintaining separation from your personal assets, others won’t either. Your personal assets may be more easily accessible to fulfill a judgment.
Holding assets in your individual name with no beneficiaries or Estate Planning
Assets held solely in your name without any named beneficiaries or Estate Planning will require administration through probate. Your family will be required to work through administrative processes and pay fees to obtain court authority before they can gain access to your assets.
Building Protection Around What Matters to Your Family
Your assets are more than just numbers. They represent the life you have built, the memories you want to preserve, and the people you want to care for. Asset protection planning cannot guarantee that nothing will go wrong, but it can help you understand your risks and make thoughtful decisions for the future. If you are unsure whether your Estate Plan or business structure provides the protection that you want and need, Cornerstone Legal is here to listen, answer your questions, and help you decide what steps make sense for you and your family.
Contact us at (517) 708-2222 or email Katrina@CornerstoneLegalPLLC.com.
Building your foundation. Building your confidence.