By Ellen Wilson

Trust-2If you own your own business, one of your worries is how to protect your assets. While a revocable trust may be a good way to protect the continuity of your business if you become incapacitated by naming a successor, it is primarily used for estate planning.

If you want to protect your assets from creditors and other claimants in suits, including divorce, you’ll need to look further than a revocable trust.

A trust, in general, is a legal agreement between a grantor, a trustee and a beneficiary. More than one person can serve any of those roles and the same person can serve more than one role.

A revocable trust is, simply, a living trust – one applied during your lifetime – with terms that can be changed by you as the grantor while the trust is in place. It can shield your family from probate costs and ensure they have access to assets if you die or become incapacitated, but it won’t keep creditors and other claimants away from your assets.

Because it can be changed, your creditors can force you to take assets and property out of a revocable trust. Since you still own the assets titled in the name of a revocable trust, it offers no protection to shield assets and property against creditors and other claimants.

To protect your business assets, your protection planning must go beyond a simple revocable trust. You’ll need to have your long-term financial goals and estate planning analyzed to ensure your assets are properly protected.

To properly plan, you’ll need to calculate your working capital. Generally, working capital is calculated as current assets minus current liabilities. Cash is excluded from current assets and debt is excluded from current liabilities.

The benefits of irrevocable trusts include, in some cases, the ability to protect working capital.

Asset protection planning means taking nonexempt assets – those subject to claims – and making them exempt, meaning they’re out of reach of someone who wins a lawsuit against you.

For asset protection planning to work, you must do it before a judgment is within view. State laws protect creditors against those who attempt to transfer assets out of their names once a lawsuit is in progress or is inevitable. Thus, you must plan well ahead of time to protect your assets.

An asset protection trust, or an irrevocable trust with a spendthrift clause that prevents the beneficiary from transferring current or future rights to the trust, can provide protection against creditors and other claimants. A self-titled irrevocable trust with a spendthrift clause is often used as an asset protection trust.

These types of trusts are not available everywhere. Delaware, Alaska and Nevada allow them, as well as offshore jurisdictions. However, many business owners use such trusts, regardless of the physical location of their business.

Proper estate planning and financial planning can result in asset protection, but, as with any type of financial planning, you must work with a qualified estate planning attorney to ensure your legal house is in order.


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