What is Estate Planning?
Estate Planning is the process of setting up your assets to pass smoothly to your heirs with the minimum of hassle and taxes. For most people this involves setting up either a Revocable Living Trust (RLT) or a Last Will and Testament.
With a Last Will and Testament, at death, the Will is submitted to a process called probate. The Will is read and the court administers the probate process. A role called the 'executor', which is someone appointed by the person who drafted the will, is responsible for actually carrying out the instruction left in the will. Any questions or disputes would be submitted to the probate court for a ruling.
When a Revocable Living Trust is used, then the assets of the estate are transferred into the Trust. At death, the only thing that changes is control of the trust. This ensures a smooth transition without the involvement of the Probate court and is generally considered superior to using a Will alone.
While either of these instruments will effectively pass an estate, and if drafted and funded properly, will also minimize estate taxes, they do not protect against a creditor or a lawsuit.
What is Asset Protection?
Asset Protection, on the other hand is designed specifically to protect assets by limiting a creditor's access to the assets. This can be done in a multitude of ways which may include using various companies and holding entities and may include; Limited Liability Companies, Limited Partnerships, Corporations, and specifically designed trusts called Asset Protection Trusts.
Due to the complexity of the structure, planning the estate is not typically a part of the Asset Protection process, but rather they are later coordinated together.
How do Estate Planning and Asset Protection work together?
Estate Planning and Asset Protection, when properly designed, can work together quite seamlessly. Ideally, the Asset Protection planning is done first. The reason it works better to focus on the Asset Protection first is that this portion of the planning is typically more complicated and has more moving parts. Also, the traditional funding of a Revocable Living Trust is not used.
Once the Asset Protection has been completed, then the plan may be 'pointed' down into whatever estate plan is then created. This could be a Last Will, or ideally a Revocable Living Trust.
How to Proceed if you have done your Asset Protection.
If you have now completed your Asset Protection, the next job is to complete the Estate Plan. This would normally be done with an attorney in your State and most likely with the use of a Revocable Living Trust. You would proceed with the creation of the RLT as normal. However, once it is created, you will not 'fund' it in the traditional way. Since your assets are already funded into the Asset Protection Plan, you will leave them there. The RLT will, in effect, stay mostly empty until a death occurs. At that time, the Asset Protection plan will pass the assets into the RLT for their ultimate distribution to your heirs.
What do I tell my local attorney?
If you local estate planning attorney is not familiar with your Asset Protection plan, then I would recommend that you have them reach out to us to discuss and help them understand how the planning will work together. If you have not yet chosen a local estate planning attorney, you may want to consider choosing an attorney who is part of the Asset Protection Council. An APC member attorney will already be familiar with your Asset Protection structure, thus simplifying the process.
If you have any specific questions or need support on anything related to your planning, please email our support directly at support@lodmell.com, or by calling 602-230-2014.
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