The estate planning process is not an unknown activity for most Michigan residents; however, some individuals and families do not always incorporate certain components in his or her estate plan. Even more so, some individuals do not use specific legal documents, such as trusts, for the right reasons. Take, for example, a revocable trust. Many incorporate these in their estate plan as a means to avoid probate; however, many are not aware of their abilities and inabilities to protect assets.
Whether you are wealthy, have family inheritances, business assets or simply seek to protect what is yours from creditors or civil judgments that could be filed against you, many seek to protect assets by making a living revocable trust. Unfortunately, many confuse this estate planning tool with an asset protection tool. While a living revocable trust helps designate what will happen with your assets when you die, it tends to leave large gaps when it comes to protecting assets.
Although revocable living trusts are commonly misunderstood, these estate planning documents can be very resourceful when used in the correct manner. In simple terms, a revocable trust should be looked at as a bucket that holds your assets while you are alive. The owner of the trust can move assets in and out as much as they please during their life; however, when they die, the assets that remain in the trust will be able to avoid the often costly and lengthy process of probate.
Because a revocable trust is not an effective safeguard for assets, it is often suggested to take other steps to protect assets. This often looks like obtaining liability insurance, owning property with a spouse as tenants by the entirety or integrating specific asset-protection strategies for those that are wealthy or have careers that cause them to have a high exposure to liability.
No matter your initial reason for including a revocable trust in your estate plan; it is important to fully understand how this document works. This will ensure that you are including all the appropriate documents in your estate plan and that there are no surprises when it comes to the protection of your assets.
Source: Nerdwallet.com, “Your Revocable Trust Is Not Protecting Your Assets,” Rachel Podnos, July 5, 2016