How Do I Set Up a Trust to Protect Assets from Medicals Bills and Creditors?

06/05/2010 - Trusts - State: NJ #22318

Full Question:

I would like to establish a type of trust appointing my (2)18 year old childrenand have my property deed changed into that trust name. My objective is protect my assets from being seized by any judgments for compensatory damages, medical bills, etc. from a third party. Would it be a statutory trust I need that I can file on my own without the assistance of an attorney?

Answer:

The ability of a trust to protect assets will depend on the facts involved, such as whether the debtor has retained control over the trust (more likely with a revocable trust), the type of debt, and type of trust. A trust can be used to perform many different functions, such as reducing or avoiding tax liability, easing lifetime financial management, protecting assets, preserving family wealth, ensuring continuity of a family business, donating to charities, voiding forced heirship laws, or create a pension scheme for employees or dependents. A properly structured and administered trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate taxes. By establishing a trust, probate delays, expenses, and requirements can be avoided. A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged, or persons suffering from certain illnesses. Trusts provide flexibility in distributing its assets to beneficiaries according to the terms of the trust document. Rather than distributing shares to heirs, wealth may be retained in one fund and distributed in a specified manner, protecting trust beneficiaries from spending all their inherited property. A trust can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Forms, such as those linked to below may be used to create a trust without the assistance of an attorney. Once assets are put into the trust they belong to the trust itself, not the trustee, and remain subject to the rules and instructions of the trust document. Most basically, a trust is a right in property, which is held in a fiduciary relationship by one party for the benefit of another. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust. Real property is typically transferred by way of a fiduciary or trustee’s deed. While there are a number of different types of trusts, the basic types are revocable and irrevocable. A revocable living trust may be amended or revoked at any time by the person or persons who created it as long as he, she, or they are still competent. A living trust agreement gives the trustee the legal right to manage and control the assets held in the trust. It also instructs the trustee to manage the trust's assets for your benefit during your lifetime and names the beneficiaries (persons or charitable organizations) who are to receive your trust's assets when you die. Revocable trusts are extremely helpful in avoiding probate. If ownership of assets is transferred to a revocable trust during the lifetime of the trustmaker so that it is owned by the trust at the time of the trustmaker's death, the assets will not be subject to probate. The trust document gives guidance and certain powers and authority to the trustee to manage and distribute your trust's assets. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust's assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust's beneficiaries Irrevocable trusts are trusts that cannot be amended or revoked once they have been created. These are generally tax-sensitive documents. Some examples include irrevocable life insurance trusts, irrevocable trusts for children, and charitable trusts. With an irrevocable trust, all of the property in the trust, plus all future appreciation on the property, is out of your taxable estate. They may also be used to plan for Medicare eligibility if a parent enters a nursing home. A trust created in an individual's will is called a testamentary trust. Because a will can become effective only upon death, a testamentary trust is generally created at or following the date of the settlor's death. They do not address the management of your assets during your lifetime. They can, however, provide for young children and others who would need someone to manage their assets after your death. An asset protection trust is a type of trust that is designed to protect a person's assets from claims of future creditors. These types of trusts are often set up in countries outside of the United States, although the assets do not always need to be transferred to the foreign jurisdiction. The purpose of an asset protection trust is to protect assets from creditors. These trusts are typically restricted by being irrevocable for a number of years and not allowing the trustmaker to benefit from the trust. Typically, any undistributed assets of the trust are returned to the trustmaker upon termination of the trust. The asset protection trust is basically a trust containing a spendthrift clause preventing a trust beneficiary from alienating his or her expected interest in favor of a creditor. A Tax By-Pass Trust or A/B Trust is a type of trust that is created to allow one spouse to leave money to the other, while limiting the amount of federal estate tax that would be payable on the death of the second spouse. While assets can pass to a spouse tax-free, when the surviving spouse dies, the remaining assets over and above the exempt limit would be taxable to the children of the couple, potentially at a rate of 55%. A Tax By-Pass Trust avoids this situation and saves the children perhaps hundreds of thousands of dollars in federal taxes, depending upon the value of the estate. A trust continues despite the incapacity or death of the grantor. It determines how a trustee is to act with respect to the trust estate. It determines how property is to be distributed after the death of the grantor. A properly drawn trust is a separate entity that does not die when the creator dies. The successor trustee can take over management of the trust estate and pay bills and taxes, and promptly distribute the trust assets to the beneficiaries, without court supervision, if the trust agreement gives the trustee that power. Trusts, unlike wills, are generally private documents. The public would be able to see how much the descendent owned and who the beneficiaries were under a will, but typically not with a trust. Like a will, however, a trust can be used to provide for minor children, children from a prior marriage and a second spouse in the same trust, transfer a family-operated or closely-held business, provide for pets, provide for charities and can remove life insurance benefits from a taxable estate, while still controlling the designation of insurance beneficiaries. A Tax By-Pass Trust or A/B Trust is a type of trust that is created to allow one spouse to leave money to the other, while limiting the amount of federal estate tax that would be payable on the death of the second spouse. While assets can pass to a spouse tax-free, when the surviving spouse dies, the remaining assets over and above the exempt limit would be taxable to the children of the couple, potentially at a rate of 55%. A Tax By-Pass Trust avoids this situation and saves the children perhaps hundreds of thousands of dollars in federal taxes, depending upon the value of the estate. Supplemental needs trusts (also known as "special needs" trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her eligibility for public benefits. As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, clothing and shelter, if the trust provides him with such discretion, if the trustee decides doing so is in the beneficiary's best interest despite a possible loss or reduction in public assistance.) This trust is most often a stand alone document, but it can form part of a Last Will and Testament. Very often, supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.

Please see the information at the following links: http://definitions.uslegal.com/t/trustee/ http://definitions.uslegal.com/t/trusts/ http://lawdigest.uslegal.com/estate-planning/trusts-overview/ http://definitions.uslegal.com/t/trustees-deed/ http://definitions.uslegal.com/r/revocable-living-trust/ http://definitions.uslegal.com/t/trustee/ http://definitions.uslegal.com/t/trusts-living-trusts http://definitions.uslegal.com/s/special-needs-trust/ http://definitions.uslegal.com/m/medicaid-income-trust/ Please see the forms at the following links: http://www.uslegalforms.com/trusts/ http://www.uslegalforms.com/nj/NJ-SDEED-6.htm http://www.uslegalforms.com/wills/new-jersey-will-forms.htm

06/05/2010 - Category: Trusts - State: NJ #22318

See more Questions in the Trusts Category