Stautz Law

Tag: RLT

  • Does a Revocable Trust Protect You from Creditors?

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    Hi folks, it’s Andy Stautz at Stautz Law. I’m here for a quick chat today about revocable trusts and creditor protection.  

    Creditor Protection as an Estate Planning Concern

    Oftentimes we’ve got clients who have business interests, right? They run a business or they own, you know, some sort of some sort of partnership interest, LLC membership, that sort of thing. And when we’re doing estate planning for those clients, the question is OK, you know, can the estate planning accomplish any creditor protection?  

    Especially if it’s a high risk business: [e.g.] logistics, medicine. Pretty much every business has its own risk. But the question is, OK, let’s say we’re doing a trust based plan, a revocable trust plan. That works well for a lot of reasons, and one of those reasons is that the settlor, (the person who makes the revocable trust) has–the way I write them–retains a ton of control to revoke, amend, you know, distribute trust assets.  

    Revocable Trusts and Creditors

    Key Concept: You Control the Living Trust so Your Creditors Treat it as Yours

    So that’s great from an estate planning side of things, but what it means is you don’t get any creditor shield from the Revocable Trust itself. Right? Because if you make the revocable trust and you grant yourself all the powers to control what’s in it, it’s still your property. I mean, it’s not [your property] to a probate court, but in the real world it is. It is!  

    You can still do what you want with it. And so that’s what happens… if there’s a judgment against you, creditors can reach assets in a revocable trust because the law says, yeah, it’s basically yours.

    Retained Control in Other Contexts

    And that’s how the tax law treats it too, right? You can’t use a revocable trust to move assets out of your taxable estate because yeah, the IRS takes a look and says, well, you still control it. Still yours.  

    So the pithy take away is a revocable trust has no creditor protection benefits. It doesn’t.  

    The pithy take away is a revocable trust has no creditor protection benefits.  

    Other Ways to Get Creditor Protection

    You know, there are great reasons to do a revocable trust still– it’s just creditor protection is not one of them. So you need to accomplish creditor protection in other ways. You know insurance is a big one. Business entity structure. You know, in LLCs, limited liability. So that’s the way to protect yourself. 

     But the the trust isn’t going to do. 

    (Obviously a Will won’t [get you creditor protection] because a Will, you know, isn’t a transfer of property at all.) 

    So with those things in mind, you know that’s it’s just two separate things you need to think about 

    Irrevocable Trusts DO Protect You from Creditors . . . at a Cost

    If you do want a trust with creditor protection characteristics, you’re looking at an irrevocable trust. Basically. I mean, big topic. There are exceptions.  

    But for a lot of people, that’s not an appropriate choice, because then you are like… to get the creditor protection, you need to actually give away the property. So that’s kind of the tension there.  

    Anyway, you need specific advice based on your risk profile. You know, the nature of your interest, what your goals are, but in general creditor protection issues are going to be part of a holistic plan, probably going to involve your financial advisor. If you’ve got one, your insurance broker, if you’ve got one.  

    And it’s not going to happen in a will or a revocable trust based plan. So those are some things to think about. Call me if you want to talk about your situation. I love talking about these things. You’re on my website, so there’s information everywhere. Hope to hear from you soon. Bye now.

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  • How Does a Revocable Trust Work?

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    Hi, it’s Andy Stautz with Stautz Law. Today we’re talking about revocable living trusts. This is a huge planning tool for the most typical clients.  

    But there are lots of questions. What is a revocable living trust? How does it work? Do I need one? And it’s worth explaining the basics here. So you kind of know what you’re getting into.  

    A revocable trust is just a trust that can be revoked: revoke-able trust. Umm, it’s a living trust because you make it while you’re alive and you can change it while you’re alive. And a trust is a set of instructions for how someone else [or yourself!], a trustee, should manage the property in trust.  

    With a revocable living trust you make it yourself. And you make yourself the trustee and you make yourself the lifetime beneficiary. So you’ve created this legal structure that kind of redefines your role relative to your property.  

    But nothing else changes. It’s a legal fiction in that regard.  

    So if you create a revocable trust, you take your property and you change the title, you change who owns it in the eyes of the law from “you, yourself” to “the trust and you as trustee of your own trust.” And that doesn’t make any difference while you’re alive. If you, assuming you, name yourself as the life beneficiary, you know, you still get to control what you do with the property. Everything’s the same.  

    Except when you die, because the property is in trust rather than owned in your own name, it goes outside of probate. It goes according to the instructions in the trust instrument. 

    So as a planning device, it’s great, right? Your setting the trust up in advance lets you use the property just the same as if you had never done it. Until time of death, when all of a sudden you get the benefits of, you know, naming other beneficiaries, naming a successor trustee, right? Umm. And that can be as simple or as complicated as you want.  

    It can be as simple as OK. My trust is mine while I’m alive. When I die, it distributes all the assets to beneficiaries A, B, and C. My children. In which case it’s basically a will. Except no probate. It costs some money to set up, but it saves you expenses on the back end and makes life easier for your beneficiaries.  

    Or it can be more complicated. You can set up a revocable trust that will have a continued life. That will stick around. Maybe you’ve got minor children or minor grandchildren. And you don’t want the distribution of trust assets to happen all at once. You can stage it. You can add life milestones. You know: when they graduate college, when they turn 30. Whatever else. Powerful planning tool.  

    It depends on this planning ahead though. You have to set up the trust during your lifetime. You have to move the assets into the trust so that the legal fiction works. But it doesn’t change anything about your lifetime use of the property.  

    So those are the basics. Obviously, whether it’s right for you or what exactly your revocable trust should contain are personal questions: that’s legal advice that you need to come in for a planning meeting for. And that’s exactly what we’ll do: Talk about your situation. See what you need and come up with the best plan for your family, your property.  

    You can book that planning meeting online. You can give me a call. I look forward to working with you soon. Thanks for watching!

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  • “Does a Will Avoid Probate?” Answered!

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    Hi, it’s Andy Stautz with Stautz Law. Today I’m back to answer another common estate planning question and that is: does a will avoid probate?

    So a client comes to me and says “I’ve got a will. Does that mean my heirs, my beneficiaries, don’t need to go to court, don’t need to do probate with all of the expenses and public filings and legal fees?”  

    Unfortunately, the answer is no. A will does not avoid probate.  

    Probate is the court supervised process of carrying out a will – of giving a will effect. So if you make a will you are basically telling the probate court how to do things. So as we discussed earlier, in “Do I Need a Will?” one of my other videos, you don’t need a will.  

    A will is a step up over no plan at all. But it doesn’t accomplish probate avoidance, which is many people’s goal. If you want to avoid probate, you need some other plan more than just a will.  

    A common one would be a revocable trust. I love those because they’re just . . . They’re private and they’re very powerful. You can give any instructions you want in a trust. Umm. And have it administered, you know, entirely according to your instructions, without going to court. It can save lots of time. Lots of money. In addition to letting you, you know shape things how you want. 

    So usually, in fact, I would contend, hopefully always, the expense of going to a lawyer and having a revocable trust set up or some other probate avoidance plan is always going to pay for itself. Not always. That’s my caveat.  

    So a will does not avoid probate. Better than nothing. But if you want probate avoidance, you need other strategies: that can be a trust, that can be beneficiary designations, which we’ve talked about elsewhere.  

    If you come and see me for an initial planning meeting, we’ll talk about your situation and we will see what makes sense for your goals. There are a lot of planning techniques out there, and it’s a matter of finding the right plan for you. So book an appointment online or give me a call. Look forward to working with you. Thanks for watching!

    Want to talk more?

    Book your initial planning meeting with Stautz Law and we’ll discuss your individual needs. No obligation.

    Book Now