When it comes to safeguarding your assets from potential lawsuits, a revocable trust may not be the most effective option. Revocable trusts are active, meaning that you maintain control of the assets and are the legal owner until your death. This means that someone who wins a verdict against you may be able to access them. On the other hand, irrevocable trusts can provide asset protection.
Once an irrevocable trust is established, the possibility of canceling the trust and reclaiming the assets transferred to the trust is abandoned forever. A unique type of irrevocable trust is a Domestic Asset Protection Trust (DAPT). With a DAPT, the grantor can be both the trustor who establishes the trust and the beneficiary of the trust. An active trust is a type of estate planning tool that allows you to transfer ownership of your assets to a separate fund while you are alive.
A Medicaid Asset Protection Trust (MAPT) is a trust used to reduce or eliminate assets that are counted as part of the total value of your estate. When creating an irrevocable trust for asset protection, it's important to include two essential provisions in the trust. This ensures that creditors cannot “put themselves in the shoes of the grantor and void the trust”. DAPTs can be attractive to doctors who live and practice in a state that has DAPT trust legislation.
Assets placed in an active trust don't have to go through a potentially lengthy and expensive probate process, as would be the case with a will. In addition, an irrevocable trust cannot be modified or canceled without approval from the grantor and beneficiaries, or without a court order. It's important to remember that revocable trusts offer no protection while the doctor is alive. To protect your assets, you should consider placing them in a Medicaid Asset Protection Trust (MAPT), a type of irrevocable trust.
Make sure to create the trust at least five years in advance and name a beneficiary you can rely on. When it comes to asset protection, it's essential to understand all of your options and choose one that best suits your needs. Revocable trusts are not always ideal for asset protection, as they do not provide any protection while you are alive. On the other hand, irrevocable trusts can provide asset protection and are often used by doctors who live and practice in states with DAPT legislation. Finally, MAPTs are used to reduce or eliminate assets that are counted as part of your estate value.