Does a Revocable Living Trust Protect My Property from Creditors?
By: Barry E. Haimo, Esq.
May 18, 2015
BARRY HAIMO: No, a revocable living trust does not protect you from creditors. It will protect, upon your death, your beneficiaries’ interest in the trust from their creditors.
A revocable living trust refers to any type of trust that can be modified or revoked during your lifetime. These types of trusts are used in estate planning primarily to avoid the lengthy and expensive process of probate and guardianship. While they have other benefits, they do not, however, shield your assets from creditors or any other outside interests in your estate.
Revocable Living Trusts in Estate Planning
Living trusts can be a powerful tool during the estate planning process. Property and assets held in a trust do not need to go through the probate courts before your beneficiaries can access them, unlike property transferred through a last will and testament. During life, they also help avoid guardianship if you become incapacitated.
Putting your assets in a trust can spare your family much of the hassle of probate and guardianship, which can last more than a year.. In addition to being time consuming, the probate and guardianship process can be extremely frustrating, expensive and emotionally draining to your family.
There are other benefits to revocable living trusts, depending on your unique situation, and they can be an essential part of a well-crafted estate plan. However, a revocable living trust does not shield your assets from creditors, who may still use assets in the trust to satisfy a judgement.
Creditors and Revocable Living Trusts
Though a trust is considered a separate legal entity, when it comes to legal claims brought against you, you are considered in control of the assets within the trust.
Typically, living trusts established for probate avoidance are set up with you named as the trustee. This role gives you control of the assets within the trust during your lifetime. You can add or remove funds as well as revoke the trust entirely. Thus, the trust is yours for all intents and purposes.
This is relevant when someone brings a legal claim against you—during your lifetime or in probate. A ruling may grant them access to the assets in the trust to satisfy a judgment against you.
After your estate is settled and creditors are paid, if structured properly, your beneficiaries’ interests in the trust will be protected from themselves and their creditors because of their limited access to and control of the trust.
What Kinds of Trusts Protect Assets?
Though revocable living trusts won’t shield your assets from creditors during life, there are many other asset protection trusts that can serve this purpose.
Irrevocable trusts are used for for many purposes, including tax planning and asset protection. You give up a degree of control over the assets placed in an irrevocable trust. As a result, the assets in the trust aren’t considered legally yours. Thus, creditors or other parties who have a legal claim against you or the beneficiaries of the trust won’t be able to access them either.
As a caveat, if a creditor already has a legal claim against you, you may not transfer your assets to an irrevocable trust in order to shelter it from a creditor. Hence, immediate action has to be taken to set up a proper estate plan before a claim may arise to protect your assets for yourself and your family.
These sorts of trusts are only one of many strategies you can use to protect your estate from lawsuits and creditors. Other options include setting up a limited liability company or investing in assets that are protected under Florida law, such as your homestead.
An estate planning and asset protection lawyer will be able to help you decide what asset protection strategies are right for you.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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