The ABCs of Asset Protection: 11 Terms You Need to Know
Knowledge is power; we’ve all heard that one, right? The saying is just as true when it comes to asset protection: understanding the ins and outs of a comprehensive estate plan can ensure that your hard-earned savings, property, and other valuables stay within the family no matter what. However, there’s a lot to know, and we get it; as much as we live and breathe law, “legal speak” can make anyone feel a little cross-eyed. It might be back-to-school season for the kids, but learning has no age limit, so we’ve put together a short glossary of terms you should know when working with a law firm to build a plan for your family.
Assets: This can include a home, property, business, savings and other funds, life insurance, investments, and other valuables.
Beneficiary: Usually a family member, the beneficiary is the person who “benefits” by being on the receiving end of a trust, will, or financial account.
Grantor Trust: This is a common type of trust for which the person who established the trust (aka the grantor) retains enough control that the IRS and the New York State Dept. of Tax consider it “the same” as the person that set it up. So, no additional taxes!
Irrevocable Trust: This type of asset-protection trust can’t be revoked once finalized; however, its contents can be updated. When drafted properly, it ensures that assets stay within the family in a way that avoids legal missteps and minimizes tax implications. (Learn more about taxes on trusts here.)
Joint Tenancy: This type of arrangement refers to when two or more people own property, such as siblings sharing a family vacation house. (By the way, we recently wrote about protecting second homes on our blog, check it out.)
Last Will and Testament: This is probably a familiar one, but just to clarify, a will is a document with guidelines that take effect upon your death, after your assets go into probate. (We define Probate below.)
Living Trust: This is a type of trust that takes effect during your lifetime. They can be either revocable or irrevocable. When it’s created properly, a living trust can keep your assets in the family and help you avoid probate. (Getting more curious about that word Probate? Keep reading…)
Medicaid: This is a government health insurance with low-income financial requirements. However, in NYS, there’s a way to qualify even if you have significant savings; this is what we refer to as Middle-Class Medicaid, which prevents you from having to spend down hard-earned assets to qualify for long-term care. (Contact us to learn more about this!)
Power of Attorney: This is a document that gives authority to another person to do banking and financial/asset transactions on your behalf. This permission is often entrusted to a close family member or friend, and when planned property, can provide security for you and your family.
Probate: (Finally!) A word that causes shudders, probate is a long, technical, costly, bureaucratic court process to get control of a person’s assets after their death. (Fun! Not really. Ask us how to avoid this.)
Revocable Trust: The counterpart to an irrevocable trust, this type allows a grantor the rights to… revoke. (Or amend, terminate, you get the idea.)
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Still with us? Good. There will be a test next week.
Just kidding.
But in all seriousness, just because you have more knowledge about these terms, it doesn’t mean you should DIY something as important as asset protection.
Give us a call to learn more about how to protect your legacy and family.