A living trust doesn't protect your assets from a lawsuit. Living trusts are revocable, meaning that you maintain control of assets and that you are the legal owner until your death. Because you still legally own these assets, it is likely that someone who wins a verdict against you may have access to these assets. A living revocable trust, on the other hand, does not protect your assets from your creditors.
This is because a revocable living trust can, depending on its terms, be changed or canceled at any time during its lifetime. As a result, the creator of the trust retains ownership of the assets. Therefore, a creditor could force the owner of a living revocable trust to terminate the trust and surrender the assets. However, revocable living trusts do not protect your assets from people with legal claims against you.
This is because, although the trust is a legal entity, for liability purposes it is treated as the owner of the trust assets. If you are the trustee of your revocable living trust, you can effectively control your assets as much as you can without such a trust. You can modify or revoke the trust (hence the name “revocable trust”) and withdraw assets from the trust, at will. Therefore, since you have the same degree of control over your property, creditors can access trust assets almost as easily as they can access assets that are not in the trust.
In addition, your assets in a revocable trust are considered personal assets for estate and creditor tax purposes. This means that if you owe money when you die, creditors have access to your assets to pay those debts. Tax on your estate may also be due if your assets meet minimum value requirements. Contrary to popular belief, revocable living trusts offer very little asset protection if you retain an ownership interest, such as appointing yourself as a trustee.
For many years, a person in the United States who was interested in creating an irrevocable trust to protect assets against potential future creditors, but who would also like access to those same assets, would need to establish a trust outside the U. A living trust can be an important part of your estate plan, but beware of mistakes that could hinder your estate planning goals or invalidate the trust. Living trusts can be great estate planning tools, but they won't necessarily protect your assets. But the garden-variety revocable living trust, which is commonly used in estate planning because it provides certain benefits, is of no use if it seeks to protect creditors' assets.
Unlike the property you leave your will, property you leave to others through a living trust does not need probate court approval before it can be passed on to those who inherit it. In other words, if you want to unleash a revocable trust and use the funds for yourself, you can. Because an established irrevocable trust cannot be altered or undone, creditors cannot “put themselves in the shoes of the grantor and undo the trust.”. Revocable trusts are a good option for those who care about keeping records and information about private assets after your death.
If you have children from a previous marriage or relationship, a revocable living trust can be designed to ensure that your current spouse receives adequate provision through regular distributions, but that the trustee will preserve the remaining assets to be transferred to your children rather than your spouse's family. And if you have minor children, you can name a legal guardian for them in a will, but not in a living trust. While a living revocable trust may provide numerous benefits, namely, the distribution upon death of one's own property without judicial oversight and possibly substantial tax advantages, such a trust does not provide creditor protection. Unlike simple revocable living trusts, irrevocable trusts are complex and you'll need an experienced estate planning attorney to create one that fits your situation.
A revocable living trust allows you to maintain control over the assets you have placed in the trust, but there are certain circumstances in which an irrevocable living trust is the best option. Only irrevocable trusts can protect assets and DAPT is usually the most attractive type of trust, since it allows access to trust assets without the threat of a creditor's claim. . .