Asset protection is an important aspect of estate planning. By asset protection we mean protecting one's wealth from liabilities so as to maximize the amount one is able to pass on. Asset protection planning is especially important for those who own small businesses, entrepreneurs, and other people.
Whether one is just beginning to build wealth or has already built up considerable wealth, asset protection planning is important. Trusts can be a great way to protect wealth, but it is important to set them up correctly.
Trusts can be either revocable or irrevocable. With the former, one can change the terms of the trust or dissolve it whenever one wishes. An irrevocable trust cannot be changed or dissolved at will, since the terms or purpose(s) of the trust must have been accomplished first. Most trust funds are revocable, so their terms can be changed.
Revocable living trusts are relatively easy to set up, but unfortunately they do not offer any asset protection. If one is sued, any money held in a revocable living trust is up for grabs. Those looking to truly protect their assets do well to do so through an irrevocable trust. These trusts have strict rules with such trusts. Firstly, they must be clearly irrevocable. Secondly, the trust must be set up before suits arise. Setting one up after a lawsuit has been filed will not protect one's money.
Trusts aren't necessarily cheap to set up and maintain, though. There are other, cheaper alternatives out there, but it is best to work with an experienced attorney to protect one's wealth. Doing so will ensure that the goals of one's estate plan are achieved.
Source: Fox News, "Can a Life Insurance Policy or Annuity Protect Your Wealth From a Lawsuit?," Tim Fussell, January 2, 201