Posted by Jimmy on March 28, 2006 at 10:28:01:
What kind of liability are you trying to avoid? a specific risk factor because of your business? or a generalized fear of lawsuits? if the latter, you have been reading too much garbage from promoters of various asset protection schemes.
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What state are we talking about? Some states have unlimited homestead rules (like TX and HI). If so, you already have pretty good protection. If not, find out what your state gives you.
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Do you have substantial wealth aside from your residence? Are you already a candidate for advanced estate planning, where legal fees can be 25K or up? If not, you are crazy to be thinking about an irrevocable trust.
2.5 You can set up an irrev trust for the benefit of others (like children). and you can transfer your house into it. fine. But if you have not retained sufficiate assets to meet your obligations and reasonably forseeable liabilities, or if you intentionally render yourself insolvent or illiquid, you just stepped into the fraudulent conveyance world. There is a significant body of law in each of the 50 states that will get in your way.
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If you did set up the irrev. trust, do you intend to be a trust beneficiary? i.e., do you intend to live in the house? if so, you just blew your protection. self-settled asset protection trusts are no effective in the US. in some offshore places, yes. but our laws are smarter than this. Maybe you intend to become a rent-paying tenant in your own home? fair enough. but the lease needs to be at arm’s length, and comemrcially reasonable. no sweetheart deals if you want the arrangement to be respected by a court. and one more thing: you cannot deduct your rent payments (a personal expenditure), but your trust will have to pay taxes on them. gotcha!
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I spent the past 20 years as an estate planning atty, focusing on business owners and wealthy families. The two most difficult assets for which to plan are: (a) super valuable residences, and (b) fat retirement accounts.
residences are hard because very few people are willing to become bona fide tenants in thier own homes. There are techniques available which can help, but most clients balk when they get into the details.