A Living Trust is used in place of a will and it is not to be confused with a “living will”. It is a revocable trust you create, you control, and you can dissolve or change any time you want. A Living Trust does everything a will does for estate planning and adds a great deal of asset protection which a will does not. The obvious reason to re-title most assets into a Living Trust is estate planning but to my debtor/creditor attorney mind that is just a bonus and you use a Living Trust for asset protection. Asset protection done in tandem with estate planning enhances both.

Intertwine asset protection and estate planning and you boost the effectiveness of both. If creditors attack, your attorney will need to argue “estate planning” as a legitimate reason why you transferred assets the way you did and why you used the LLCs, Trusts, and the other entities you used. If it is the IRS, your attorney will need to argue “asset protection” as a legitimate reason for the transfers, LLCs, and Trusts.

LIVING TRUSTS ARE EXCELLENT IN THEIR OWN RIGHT AND HERE ARE THE REASONS:

Living Trusts should be used because they do everything wills do plus:

1) Mental Incapacity Planning - Living Trusts provide absolutely the best planning for possible mental incapacity. You, rather than a court, decide the criteria for a decision on your mental capacity. You decide those who will make the determination. You decide who will be your “successor trustee” to deal with your finances if you are mentally incapable of doing so. You pre-determine what your “successor trustee” will do with your finances while you are incapacitated. All these things happen without the cost, intrusion, and unknown outcome of a court intervention.

2) Living Trusts Are More “Durable” than Durable Powers of Attorney - Living Trusts are more widely accepted and thus more effective with less hassle than Durable Powers of Attorney (“DPOA”). Living Trusts accomplish everything DPOAs accomplish and Living Trusts specifically protect against the problems that arise when the IRS and certain banks, brokers, life insurance companies, etc., apply “expiration dates” to DPOAs (usually two (2) years). Living Trusts work better than DPOA because there is significantly less liability risk to institutions (which is all they care about) when they honor a Trustee’s directive pursuant to a Living Trust than when they honor an attorney-in-fact’s directive under a DPOA. You will also have a DPOA but without a Living Trust you will be less secure.

3) Living Trusts Force Organization - Living Trusts require a present organization of your assets and then help foster continuing future organization. What seems like a pain in the rear (and can be) is a powerful asset protection boost in terms of asset organization, promotion of centralized asset management, aligning beneficiaries on life policies, retirement accounts, etc., with your present intentions, and reintroducing you to all your assets and how they are titled. Confusion or apathy on your part will work to the advantage of a creditor attorneys, I know I was one.

4) Living Trusts are Separate Legal Entities – Living Trusts are separate legal entities that can be used to help with asset protection if needed as the second owner to transform single member LLCs to multi-member LLCs and thus provide the LLC owner with some “charging order” protection. Living Trusts are themselves pass-though entities for tax purposes as are multi-member LLCs owned by a client and the client’s Living Trust which keeps things simpler along tax lines.

5) Living Trusts and Personal Residence Ownership - Living Trust ownership with respect to a personal residence will not affect your state’s Homestead exemption, your existing mortgages (will not trigger a mortgage “due on sale” clause), your IRS tax benefits on home ownership (mortgage interest deduction and capital gains breaks), or trigger the requirement for a new property tax appraisal (at least not in South Carolina). Living Trusts are disregarded for tax purposes, do not disturb the status quo of home ownership, all while keeping the re-titling of your home out of probate at death.

6) NO Probate with Living Trusts - Living Trusts avoid the necessity of court action and intervention concerning your assets after death (either no probate or minor probate). The money this saves you in South Carolina maybe negligible but the saved hassle can be priceless.

7) Living Trusts Are Private and Confidential - Wills and the probate they require leave a “roadmap” on the public record for creditors of the surviving spouse and your other heirs as to what you leave and to whom you leave it. Probate has been called “a law suit you file and pay for yourself, for the benefit of your creditors and unhappy family members”. I have personally used probate records to my creditor clients’ benefit in locating assets for collection; I once “discovered” a $1 million life insurance premium paid to a debtor’s business entity by going to the court house and reading the public probate record. There is no public record “roadmap” with a Living Trust.

8) Living Trusts Speed the Transfer of Wealth - Living Trusts speed up the time it takes to move assets along after death as opposed to will based planning with the time requirements of probate.

9) Chilling Effect on After Death Challenges - Living Trusts dampen rather than promote legal challenges after death because of the lack of probate. Remember, probate is “a law suit you file and pay for yourself, for the benefit of … unhappy family members”.

10) Living Trusts Avoid Out-of-State Probate for out-of-state assets - Titling out-of-state real property in your Living Trust avoids probate in every other state where property is located. Will planning will result in the cost and hassle of out-of-state attorneys and out-of-state probates for out-of-state property.

11) Living Trusts Can Require Pre-Nuptial Agreements for Unmarried Clients – Allow the Living Trust to be the “bad guy” not you. This bit of “estate planning” is sometimes the best “asset protection” of all. It is your Living Trust that requires the pre-nuptial agreement, it is the lawyer’s fault not yours, can’t do that with a will.

12) Living Trusts Can Also Provide Second Marriage Protection and be the Springboard for Next Generation Asset Protection - Living Trusts can include re-marriage protection for the surviving spouse and children of a first marriage should either spouse die and the other remarry. Again it will be the Living Trust that is the “bad guy” not the surviving spouse. Do not underestimate the difficulty of speaking with a fiancé about a pre-nuptial agreement. Living Trusts (and wills) are excellent for putting future Trusts in place to protect your heirs against remarriage, divorce, legal judgments, bankruptcy, and creditors of all strips. It is the kind of asset protection you would love to have for yourself right now.

13) Disinheriting Family Members – In South Carolina Living Trusts are superior to wills if you ever need to disinherit a family member. Under the South Carolina Living Trust statute provisions in a Living Trust disinheriting someone can be made “unchallengeable” after death by showing the provisions to the person to be disinherited before death. There is a six (6) months period after notice of the provision to the person to be disinherited in which that person must legally challenge the disinheritance. If the provision is not challenged within the time limit that person is legally barred from any future challenge. If there is a timely challenge, which is doubtful, you would get to testify on your own behalf which is a slam dunk against the challenge and when the challenge fails the disinherited person is barred by law from ever challenging your Living Trust again.

Attorney Mason Salisbury practices asset protection and estate planning law with Pelzer and Salisbury, LLC in Charleston, South Carolina. He can be reached at msalis1219@aol.com