The Trust Lawyers Blog

Life Estates

Posted by Dave DePinto on Fri, Jun 10, 2016


1. Definition: 

    a. An estate is used to express the nature, duration or extent of an interest in land. A life estate is an estate which is measured by the life of a specified person, by the joint lives of two or more specified persons, of by the last survivor of two or more specified persons.[1]

    b. Right to use and occupy is not a life estate.[2]

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Tags: Estate Law, Medicaid And Assets, Estate Planning, Asset Protection Trust, Life Estates, Asset Protection

An Asset Protection Trust Is Like An Insurance Policy For Your Wealth

Posted by Dave DePinto on Thu, Mar 22, 2012

If you're concerned with protecting your assets against possible legal claims against them, there are a wide variety of sophisticated financial tools available to help with this. One of the most controversial, yet often highly effective, examples of these is the asset protection trust. That term can be applied to a wide variety of trust structures, but generally refers to self-created trusts meant to shield your assets by placing them under the control of a trust located in a state with favorable protection laws, such as Nevada or Delaware.

In general, they work much like any other trust. You – the settlor – take your assets and place them under the control of a trust, using a situs trustee in that state. Often with these asset protection trusts, there is also a designated protector you select who has power over what the trustee does with your assets.

One unique aspect of them, which often makes them preferable to other estate planning trusts,is that in many cases the settlor can also be a beneficiary. In some cases, it's even possible for you and/or your spouse to form a Limited Liability Company and exert some level of control over the assets, while still being legally shielded.

Properly set up, they can make it extremely difficult for a debtor, divorcing spouse, or other legal claimant to gain access to any of your assets. By being located in another state, one with secrecy and protection laws, they should be outside the reach of local courts. The trust can even be set up with instructions to ignore orders given under duress, effectively rendering you blameless if court orders directed at the trust are not fulfilled.

It's important to know one thing that an asset protection trust is not, however. It is not a tax shelter. The settlor is still responsible for taxes on any assets within the trust, and must report them in their tax filing. Any attempt to hide assets from the IRS in an asset protection trust is risking tax fraud charges. Also, these trusts should not be deliberately used to defraud legitimate debtors. There are substantial legal tools that can be brought to bear on the settlor if a court deems the trust to be fraudulent.

Asset protection trusts are not for everyone, and carry some risks and significant drawbacks,not the least of which being the deliberate transfer in a structure that makes practical sense to you. Nonetheless, in cases where they are needed, they can be extremely powerful tools for asset protection with relatively little risk to you other than the cost of creation and annual trustee fees. I like to think of these costs as insurance premiums for protecting your wealth.

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Tags: Asset Protection Trust, Fiduciary Services, Asset Protection

Medicaid And Assets: 10 Questions To Ask Yourself

Posted by Dave DePinto on Tue, Mar 13, 2012

As you grow older, one of the most important things to think about is how you're going to handle long term care once you pass retirement age. This is especially important when considering if you're going to attempt to receive Medicaid to pay for these expenses.  

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Tags: Estate Law, Medicaid And Assets, Asset Protection Trust, Asset Protection

How To Set Up An Asset Protection Trust For Your Aging Parent

Posted by Dave DePinto on Thu, Mar 08, 2012

One of the hardest things for a child is becoming responsible for their parents' lives. It doesn't happen to all of us, but many people out there will one day find themselves with disabled parents who need to be cared for. If your parents have substantial assets, this becomes even more critical: they need money to pay for their care but, presumably, you and the rest of your family would also like to have an inheritance left.

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Tags: Asset Protection Trust, Asset Protection

Protecting Assets from Malpractice With An Asset Protection Trust

Posted by Dave DePinto on Thu, Jan 26, 2012

Many medical professionals fear losing their personal assets to a malpractice claim. There's good reason for this, too. An estimated 25% of practicing physicians are sued annually, and over half of all physicians will likely face a malpractice suit sometime during their careers. While only around a quarter of these are won by the plaintiff, payouts are often high enough to be ruinous to the doctor, especially as malpractice insurance coverage continues to shrink. With odds like that, it would be very unwise not to investigate an asset protection trust to shield your wealth in case of disaster.

There are a number of different asset protection structures available to you for protecting your wealth against court claims. Among the most popular of these is the Family Limited Partnership (FLP). An FLP is a form of business structure where there are general partners with managerial rights, and limited partners with less governorship but also less personal liability. As this FLP would become the owner of your assets, it becomes much more difficult for claimants to get a hold of them. One typical scenario involves the FLP being set up with you as a limited partner, and your spouse the general partner, since he or she would not be involved in a malpractice suit.

FLPs can also pull a double shift by acting as estate planning as well. It can be used to gradually distribute your wealth to your heirs, generally as limited partners, helping to ensure as much of your wealth as possible goes to them before your death. Upon your death, remaining assets are taxed at a lower rate than the estate tax takes.

Irrevocable trusts or offshore trusts are another option, although these are somewhat more drastic and may not be needed unless you are in a high-risk area of practice. In the case of these, you would be permanently transferring your wealth into the hands of a trust, which then governs their usage and investment.

Much of the value of asset protection structures lies in their deterrent effect. Many malpractice suits are launched in hopes of a large payout. If you convince the plaintiff's lawyers that your assets are shielded, they may just take the insurance settlement, rather than risk a lengthy and expensive court battle with questionable chances of success.

However, with any of these asset protection trusts, the key is planning ahead. Once a lawsuit has been initiated against you, attempts to protect your assets will be fruitless. Just as you have malpractice insurance to protect you professionally, asset protection is insurance for your money itself. An ounce of prevention, as they say, is worth a pound of cure – especially when that “cure” is your own wealth.

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Tags: Asset Protection Trust, Fiduciary Services, Asset Protection

Special Needs Trusts: Maintaining SSI Income and Medicaid Benefits

Posted by Dave DePinto on Tue, Jan 24, 2012

If you have a disabled person in your care, or even in your family, you undoubtedly spend a lot of time worrying about their well-being. People with special needs are in a unique financial situation in several ways. Many of them are not capable of doing their own financial planning and cannot be trusted to manage large amounts of money.

Worse, though, is that what would be a windfall for most people – such as an unexpected inheritance or life-insurance payout – can actually be a disaster for them. Because they cannot own more than $2000 in assets (exempting a house and a car) without losing their Social Security and Medicare\Medicaid benefits, a large payout can actually take away their ability to survive in the long term. These are the situations that special needs trusts address.

There are several types of special needs trusts, but in general, they are trusts set up by a third party, usually either a relative or the court system, to hold their assets in trust so that they are not counted towards the SSI asset limit.  They can also provide for supplemental expenses, such as medical care not covered by government benefits.  They can fill the “donut hole” in Medicare coverage, or provide legal support if the person is involved in court actions.

There are also special limitations on them. The disabled person is not allowed direct access to them or any power to order their disbursement. The assets can come from their own assets, but mostly come from outside contributions and inheritances. Because of SSI rules regarding asset counting, they generally cannot be used to provide for basics of living such as food and shelter. These are instead supposed to be paid using government support. However, these trusts can be used to pay for special events such as parties and vacations, or to modify their home to fit their needs.

These special needs trusts are also superior to the usual alternative of having a relative pay for their costs directly.  For example, the trust is legally obligated to provide for their support; a relative is not. Also, the assets are shielded from legal action. If you were to leave money to your brother to support your disabled child, but your brother was involved in a costly divorce, your child's care goes away with the settlement.

Ensuring the proper care and quality of life for a disabled person can be a daunting task, and it's not made any easier by the constant fear of having their SSI benefits taken away.  In short, special needs trusts can be an extremely safe and reliable method of ensuring they have everything they need for years to come.

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Tags: Special Needs Trusts, Asset Protection Trust, Asset Protection