A revocable trust offers no asset protection benefits. As mentioned above, a reovocable trust may be revoked at anytime, including by a judge. This means the assets return to the trust’s creator and may be used to pay creditors.
An irrevocable trust cannot be revoked except under infrequent circumstances. Asset protection begins immediately and after two years transfers into the trust cannot be contested. That is, the trust owns the asset and it cannot be taken to satisfy personal debts.
A trust is considered its own person under the eyes of the law and accordingly pays its own taxes. By establishing a trust in a state with no income taxes you can minimize your overall tax burden. A revocable trust is taxed as a pass through entity, with no changes in the taxes which are due.
Both trusts may be used to title assets not using your name. The beneficiary of a revocable trust is easier to ascertain via court order. It is more difficult to pierce an irrevocable trust’s privacy. Plus, in the cases where privacy is lost, this does not diminish the asset protection benefits because the trust is still the owner.
An asset protection trust separates the ownership of assets from enjoying their benefits. The trust safely holds your assets and cannot be revoked by creditors or anyone else.
Responsibly Provide For Beneficiaries
A revocable trust provides your beneficiaries with an outright inheritance. This is irresponsible for a few reasons. The first is because your heirs may experience their own credit events, such as a car wreck or bankruptcy, and your life’s work will be at risk. The other risk is that of unintended beneficiaries. That is, your heir marries and then divorces. Their former partnere is entitled to half of everything including their inheritance. An asset protection trust avoids these downfalls.
An irrrevocable trust provides two major savings. The first is through shifting income to a lower tax jurisdiction. This saves on state taxes. Income inside the trust can also be allocated in ways designed to minimize taxes during your lifetime. The second is through the lowering of insurance premiums. Those in high risk industries often pay exorbitated insurance premiums. Separating assets from one another, and from your name, lowers your risk profile and the required insurances.