The purpose of a trust is to protect assets that can be passed onto the next generation. However, if a family has certain debts, a trust does not necessarily protect the assets within it from being collected by creditors. If you or your beneficiaries file for bankruptcy, it is possible for the trust to be seized as repayment of debts. Continue reading below to learn more about what can be done in these situations and contact an experienced New York estate planning attorney for assistance.
What is the Difference Between a Revocable and Irrevocable Trust?
When discussing trusts and debt, it is important to know the differences between a revocable trust and an irrevocable trust. Revocable trusts allow the grantor total control of the trust until they die. In these cases, the assets in the trust are legally considered their property during their lifetime. Beneficiaries will assume ownership of the assets when the grantor passes away.
In terms of an irrevocable trust, the grantor is not in control of the assets. While beneficiaries do not necessarily have access to the assets within a trust as soon as it is created, they are legally considered the owners. In order to protect the assets from credit seizure during bankruptcy, is possible to add a “spendthrift” provision to this type of trust. In some cases, a trust may also be eligible to be exempt from seizure during bankruptcy.
What are the Benefits of a Trust?
When choosing between creating a revocable or irrevocable trust for your assets, it is important to do what is best for your personal estate. Some of the benefits of an irrevocable trust can include:
- Estate tax reduction
- Asset protection
- Charitable estate planning
On the other hand, some of the benefits of having a revocable trust can include the following:
- Planning for mental disability
- Avoiding probate
- Protecting privacy
Contact our Firm
Zimmet Law Group, P.C. is an experienced team of attorneys guiding clients through matters of estate planning and administration, divorce and family law, real estate, commercial litigation, business law, bankruptcy, and landlord-tenant law. If you require the services of an effective New York City attorney, contact our firm today to schedule a consultation.
