The Benefits of a Protective Trust

Couple handshake with fiduciary at homeWhat does “irrevocable” really mean? It does not mean unchangeable, unamendable or that you’ve lost control of your assets or how they are invested, sold and/or refinanced. An irrevocable trust can be drafted so that you can have your cake and eat it too. That’s why we have created and often recommend the use of our protective trust. The protective trust is a modern irrevocable trust that has many benefits and does not suffer from the drawbacks of the traditional irrevocable trust. These are the major reasons the protective trust is superior to the traditional irrevocable trust:

  1. The protective trust is a grantor trust that you create and are in control of. No beneficiary ever has a right to demand a distribution of income or principal during your life.
  2. The protective trust provides asset protection from future liability like car accidents, professional or personal negligence, and even can be structured to provide protection from Medi-Cal ineligibility.
  3. The protective trust is a disregarded entity for tax purposes and uses your social security number. This means you are taxed just like as if you owned the assets yourself.
  4. The protective trust does not remove assets from your estate, so your beneficiaries receive a full step-up in basis upon your death, just like with personally owned assets or those in a revocable trust.
  5. The assets in a protective trust can be protected from the surviving spouse’s future marriage in much the same way that a prenuptial agreement would protect the assets.
  6. You can change the beneficiary in your protective trust, at any time, without risking loss of the assets to creditors.
  7. The protective trust has special provisions to protect inherited IRAs from the claims of creditors. (A recent Supreme Court case held that inherited IRAs are not protected from creditors)
  8. All assets that can be transferred to a revocable trust can be transferred to a protective trust without penalties or termination.
  9. The protective trust can contain trust protectors that enable changes to the documents if the laws change in the future, in much the same way as one would have with a revocable trust. Often in joint irrevocable trust, changes cannot be made after the death of the first spouse, but even with a joint protective trust changes can be made after the death of the first spouse.

As you can see there are some major benefits to using a protective asset protection trust over a traditional revocable trust.

Contact Us

If you have additional questions or concerns regarding protective trusts, contact the experienced Los Angeles Estate Planning attorney at LA Elder Law by calling 310-823-3943 to schedule an appointment.