Is an irrevocable trust the right estate planning tool for me?
The Michigan Qualified Dispositions in Trusts Act of 2016 recently took effect and it could benefit thousands of individuals in Michigan who want to protect their assets from creditors during their lifetime. Trusts in Michigan have always provided an excellent estate planning tool. A traditional revocable trust in the state allows individuals to transfer their assets to a living trust for their use during their lifetime. Upon death, the assets in the trust will transfer to named beneficiaries. For beneficiaries, these assets are shielded from creditors and new or divorcing spouses. However, during your lifetime, creditors and new and divorcing spouses have full access to living trust assets.
Up until this year, individuals who wanted to set up an irrevocable trust had to travel to one of the 16 states that allowssuch a trust. Now, Michiganders can shield their assets from others during their lifetime with the creation of an irrevocable trust, also referred to as a domestic asset protection trust. This type of trust cannot generally be changed once created. Assets placed within a properly created irrevocable trust will not be reachable by creditors after they have been in the trust for at least two years.
Benefits of an Irrevocable Trust
An irrevocable trust is not right for everyone as it does allow for less flexibility than a traditional revocable living trust, but it can greatly benefit certain people. Generally, if you have significant assets and creditor concerns, you could benefit from a domestic asset protection trust. You will need to be willing to give up some control over the assets, but it could save you significantly in the long run. Individuals working in fields with high liability activities, such as aircraft owners, should investigate this type of trust.
Other people that could benefit from an irrevocable trust include those with significant assets who are about to get married. Domestic asset protection trusts can provide protections in addition or as an alternative to a prenuptial agreement. Assets placed in an irrevocable trust will not usually be considered marital property, which will protect you in case of divorce.