Wrapping a Security Blanket Around Your Assets from Creditors – Does a Living Trust do the Job?

Revocable trusts or living trusts, created with the help of an estate planning attorney, can hold the grantor’s assets while they are alive. When the grantor dies, the trustee, who the grantor chooses while creating the trust, distributes the assets to beneficiaries as required by the trust. No probate process is involved in all these matters. Many people use trusts for avoiding court matters as it can be costly and complex. Also, documents of trust aren’t made public while the records of a will can be searched by anyone. Another good thing about trusts is that the trustee would take care of all the affairs should anything happens to the grantor. This will happen without any involvement of court. It is worth noting that in a revocable trust, the assets are considered the grantor’s property. The grantor can also revise the terms or cancel the trust whenever they want. Due to this reason, the assets placed in the trust can be collected by creditors because they are owned by the grantor. A creditor might seek to terminate the trust to acquire the assets in it. So living trusts can’t offer asset protection against creditors and when you creating an estate plan, you should not create this type of trust if you want to protect your assets.

An irrevocable trust, created with the assistance of an estate planning lawyer, can offer protection against creditors. The difference is that the assets in the trust become the trust’s property and the grantor has no control over them. Moreover, the terms of this trust are fixed and the grantor can’t change them. Since the assets put inside the trust aren’t owned by the grantor anymore, a creditor can’t go after them. It is still important for you to check the state law about irrevocable trusts. This would help you understand whether your assets are completely protected or not. It is worth noting that a court can find if the assets were transferred to defraud creditors. If the court finds this, the assets in the trust will become exposed and the grantor could be penalized for their fraudulent actions. This is why it is important that you speak to your estate planning lawyer when creating an irrevocable trust.

If you want to protect your assets, you don’t necessarily have to put them in a trust. There are a few other ways to protect your money and property from creditors. In some states, certain assets are protected from creditors. For example, a ‘homestead exemption’ in many states protects the main house of the person and no one is allowed to touch it even in bankruptcy. Assets can also be protected from creditors through liability insurance. Another idea is to establish a separate business entity to protect personal assets against creditors. Keep in mind that the right type of asset protection would keep creditors at bay and prevent them from taking your money and your property. Therefore, discuss your options with an estate planning lawyer and act on their advice to protect your valuable assets from creditors.

If you want to keep your assets safe from creditors and ensure that they end up with your beneficiaries after you are gone, don’t set up a revocable trust. Creditors can go after the assets within a revocable trust. Instead, create an irrevocable trust as it offers asset protection against creditors and would ensure that your beneficiaries get your assets after your death.