By Lee R. Phillips

We receive lots of queries from people who are struggling with the important issues of asset protection and estate planning. Periodically, we answer some of those questions for everyone to learn from, or at least help you see options that you need to discuss with your own trusted advisors.

Best Way to Pass Your Home

Q.  My girlfriend’s mother is in her early 60′s and has placed her house and another piece of property in her three daughters’ names. Her fear is that she may become ill and have to go in a nursing home and have to sell these. Their current value is approximately $600K. She wants the girls to inherit the properties. I am wondering if a Revocable Trust would accomplish this as well and protect the mother if one of the daughters were to get in trouble financially prior to her death so that the mother could always remain in the home. This situation is in Virginia. Chris

A.  You are right! When Grandmother transferred her property into her daughters’ names, the property immediately became subject to any and all of her daughters’ personal and legal problems.  Bankruptcy, divorce, judgments, tax liens, lawsuits of just one daughter can cause Grandma to lose the property and there would be no inheritance for anybody!   Also when Grandma transferred the property, she triggered a couple of tax problems.  First a gift tax kicked in, and she lost the stepped-up basis for her house.  Plus Grandma has now lost control of her property so she cannot sell it.  The really sad thing is that the government can still come after the property for the rest home expenses unless it was transferred more than five years before she enters the rest home. A living revocable trust will protect Grandma’s house from the daughters’ legal problems and when she dies the daughters will inherit it, and it is not subject to their problems.  If it is inherited, the home is not subject to the gift tax issue and will get a stepped-up basis.

Annuities and Judgments

Q.  Are annuities protected from judgments and lawsuits? Ron

A.  Annuity laws are state specific so it depends on where you live, but generally they are protected from lawsuits and judgments.  Check your state law.

Family Trusts and Lawsuits

Q.  I’ve heard that setting up a family trust will prevent personal assets from lawsuits or other actions and need to know if this is true and how I establish one.  I am the sole individual who would make use of the trust. Patrick

A.  The living revocable trust does not protect your assets, because if you can revoke it, your creditors can also force you to revoke it.  There is not much a single person can do. A trust can, however, give a couple some limited asset protection if two trusts are created. This process is explained in my Accumulation and Preservation of Wealth Course and the documents to create this type of trust are also included. An overview of the process and possibilities is in my book Guaranteed Millionaire. It is a great read and you can get it at Amazon.com or call the office and for the same price I will include a DVD on Using the Law to Make Money and Protect Your Assets.

How to Build a Bulletproof Asset Protection Plan

Q.  In building a bulletproof asset protection plan, which state is the best to file a limited liability entity, Wyoming or Nevada? Which entity would be the most effective?  An LLC, LP, “S” Corp or a “C” Corp?  Milton

A.  There is no best state to file a limited liability company in.  Changes in state law have made it so you can usually file in your own state and have good protection.  Plus it is more costly to file in a foreign state. Which entity to use is more of a personal question.  You really have to weigh control, tax questions and asset protection.  I go through this discussion in detail in my new course Maximizing Your LLC’s Money Making and Asset Protection Potential.

What Does a Co-Trustee Do?

Q.  Your website is awesome. I wanted to ask a question.  My husband and I have a revocable living trust with both of us as co-trustees of the trust.  He has now passed away.  Do I need to do anything or change anything?  I have left the living trust just as it is. I have changed annuities and such but I have not changed the title to our house.  It is in the trust with us as co-trustees.  How do I change the name of the title of the house?  Thanks, Omitene

A.  Let me express my condolences for your loss.  The best thing about a trust is that you don’t need to do much when one of the co-trustees passes.  You do not have to do anything with the title to your home because it is held in the name of the trust.  The trust document will have a section or at least a paragraph that tells you that you are the successor trustee. Sometimes a child is named as a co-trustee with the surviving spouse. Read your trust; it is your road map. Assuming you are the successor trustee, if you have any property that is not currently held in the name of the trust, now would be a good time to make the transfer.  Also if you have a taxable estate (this year that is over $3.5 million) then you should get an accountant to file the proper estate tax return and make the proper elections.

What Type of Trust Should I Get?

Q.  I am interested in setting up a trust.  I don’t know if I want a revocable or irrevocable one. Thank you. Azuki

A.  It is a good idea to set up a trust. Which trust you get depends on what you are trying to accomplish.  A revocable trust can be modified or changed at anytime you wish, and you maintain control over the property you put in the trust.  It has very limited asset protection and does not change your taxes.  A “living trust” is a good example of a revocable trust. An irrevocable trust cannot be changed, canceled, or “revoked” once it is set up. Insurance trusts and “Children’s Trusts,” or “2503 Trusts,” are examples of irrevocable trusts. These trusts remove all the property from your control so you are not taxed on the property you put in these entities.  Irrevocable trusts are treated by the IRS very differently than revocable trusts. I caution you to think very carefully before you set up an irrevocable trust, because you really are giving away the property. It is not yours and you cannot get it back. I have had a lot of clients call me and ask me to cancel their irrevocable trust. It can’t be legally done. So think carefully before you use one.