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Deeds with Life Use vs. Asset Protection Trusts: Key Considerations and Potential Pitfalls

Estate planning involves making crucial decisions about how your assets will be managed and distributed, both during your lifetime and after your death. Two common strategies in this realm are using a deed with life use and setting up an asset protection trust. Each approach offers unique benefits but also comes with its own set of risks and potential complications. Understanding these strategies in detail is essential for making informed decisions that align with your goals and circumstances.

Deed with Life Use

A “deed with life use” (or “life estate deed”) is a type of property deed where the owner retains the right to use and live on the property for the rest of their life. Upon their death, the property automatically transfers to the designated beneficiaries (remaindermen) without going through probate.


  • Irrevocability: Once a life estate deed is executed, the owner cannot change the beneficiaries or sell the property without their consent.
  • Medicaid Planning: If the owner needs long-term care and applies for Medicaid, the value of the life estate may be considered a countable asset, potentially affecting eligibility.
  • Capital Gains Tax: The remaindermen may face significant capital gains taxes based on the original owner’s basis in the property.
  • Control Issues: The owner loses control over the property to some extent because they cannot easily make changes or decisions involving the property without the beneficiaries’ agreement.
  • Potential for Conflict: There could be conflicts between the life tenant and the remaindermen regarding property maintenance and expenses.

Asset Protection Trust

An “asset protection trust” is a legal arrangement designed to protect an individual’s assets from creditors, lawsuits, and other potential threats. These trusts can be domestic or offshore and are often used to manage and protect wealth.


  • Complexity and Cost: Setting up and maintaining an asset protection trust can be complex and expensive, requiring legal and financial expertise.
  • Legal Scrutiny: Courts may scrutinize these trusts, especially if they were established with the intent to defraud creditors. Fraudulent transfer laws can invalidate the trust.
  • Loss of Control: Placing assets in a trust typically means relinquishing some control over them, as they are managed by a trustee.
  • Tax Implications: There can be tax consequences, both at the time of funding the trust and ongoing, depending on the jurisdiction and the specific terms of the trust.
  • Legislative Changes: Changes in laws and regulations can impact the effectiveness and legality of asset protection trusts.

Given the complexities and potential pitfalls associated with each option, it is highly recommended to consult with an estate planning attorney. TrustCounsel can provide personalized advice and help you navigate the legal intricacies to protect your assets and meet your specific needs. Reach out to our team of attorneys today to ensure your estate is managed according to your wishes and with the best possible protections in place. To get started, please visit our contact page to select the office location most convenient for you, or complete our contact form, and we will promptly reach out to schedule your appointment.

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