Asset Protection Planning for The Middle Class

Asset protection planning isn’t just for the 1% or the high net worth families anymore. With the rising costs of long-term care in Michigan, plus the increases in divorce and creditor issues, more and more of my clients are interested in asset protection. Asset protection for themselves against long-term care and creditor and divorce protection for their children.

Asset Protection Planning For the Middle Class

With the advent Lifetime Protection Trust’s, clients these days have the ability to build in asset protection into their estate plans in simple, easy to understand ways, that use to only be available to net-worth individuals. Use of Lifetime Protection Trusts (IPUGs, MITs, FITs, KITs) has allowed savvy estate planning and elder law attorneys to protect middle class families from the devastating costs of long-term care, as well as against divorce, law suits, and creditor actions.

How Do Asset Protection Trusts Work?

The typical asset protection trust works like this. This might be called an IPUG, MIT, or Lifetime Protection trust. Mom and Dad create the asset protection trust. They then transfer assets to the trust. Any type of asset can go into the trust (except retirement accounts). Once in the trust, the longer the assets are in the trust, typically, more can be protected against nursing home spend down. Once five years has passed, all the assets in the trust are protected from nursing home spend down. The assets inside the trust can also be protected against creditors and bankruptcy.

The trust is set up like a piggy bank, so that Mom and Dad can be trustees of the trust (i.e. manage the assets inside the trust) during their lifetime. They can buy or sell real estate, change the nature of the investments, manage the assets. They can even receive the income or dividends from the trust.

However, Mom and Dad cannot take assets or principle directly from the trust. Instead they would distribute to lifetime beneficiaries of the trust. People during Mom and Dad’s lifetime, they allow to receive the assets from the trust. For example the children. Then the children can do what they want with the assets (including gift the assets back to Mom and Dad).

Then when Mom and Dad pass away, the assets can be distributed to the children in General Needs Trusts where each child could in essence have their own piggy bank, protected from divorce, creditors and even long-term care costs.

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