Catastrophic medical expenses can quickly consume your savings. It is not uncommon for families to see medical bills reaching hundreds of thousands when looking after a loved one. If you are not prepared for such an issue, then it is not uncommon to lose a significant portion of your wealth to collection agencies and hospitals. Unfortunately, many people put their faith in a revocable living trust, thinking that it will protect their money and failing to see its real purpose.
Understanding a Revocable Trust
Many people create a revocable living trust when preparing their will and estate. The primary aim of a revocable trust is the avoidance of lengthy probate court proceedings. When you create a basic trust, you predetermine who receives your assets upon your death, which means you can avoid probate approval for inheritances. Another benefit of a living trust is to appoint an executor of your estate, someone who will handle decisions for you should you become incapacitated.
Does a Revocable Trust Protect Against Creditors
Unfortunately, the creation of a living, revocable trust will not protect your assets against debt collectors or lawsuits. A revocable trust still places you as the owner of the assets and money because you still have complete access to the estate, without restriction. If you can always sell assets, give them away and do what you want with them, a court will not limit the reach of a creditor. Hospitals can still sue you to collect payment, and debt collectors can do the same.
Using an Irrevocable Trust
There is a way to protect your assets from creditors, but you must be comfortable with losing ownership. An irrevocable trust does not allow you to control the assets you put in, which means that in the court’s eyes, you are not the owner of the asset. If you are not the owner, then a creditor cannot demand payment from the trust. By placing your money or property into an irrevocable trust, you can rest assured that no one can take them from you.
While the thought of catastrophic medical bills is intimidating, it is necessary to understand the appropriate way to protect your wealth. Using a basic revocable trust does nothing to protect your assets against lawsuits and debt collectors. You must use an irrevocable trust, giving up legal ownership, to protect your assets. If you would like to discuss the pros and cons of an irrevocable trust, then contact a trust fund lawyer, like the Yee Law Group for a consultation.