When you leave your heirs assets and property through a will, you expect them to properly manage the wealth you worked so hard to acquire and, if possible, pass it down to future generations. However, unexpected life events can come in the way of that.
Picture a situation where your loved one is unable to clear a huge debt. Since a will passes over legal ownership of estate assets to its beneficiaries, credits can seize assets that belong to your loved one to recover outstanding dues. As a result, your estate could end up with third parties, which is not what you would have wished.
To avoid that and protect your estate, you should consider including irrevocable trusts in your estate plans, as discussed below.
Trusts are separate legal entities
When you transfer assets to an irrevocable trust, they legally belong to the trust as it is considered a separate legal entity. Your loved ones who are bound to benefit from the trust are mere beneficiaries and do not own these assets in the eyes of the law.
If a similar scenario arises, where a loved one defaults on debt, creditors cannot come after assets held in the trust to recover their money due to the issue of legal ownership. In addition, a beneficiary cannot sell trust assets to clear the debt.
Making the most out of your estate plans
When done by the book, trusts can do more than protect your estate from creditors. You can save a lot in taxes and avoid the lengthy and costly probate process, among other benefits.
Learning more about how trusts work and what you need to do when setting one up is worthwhile. It can help you avoid the uncertainty of having a will alone since you never know what could go wrong when you are gone.