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Can You Use a Revocable Living Trust for Asset Protection?

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A Revocable Living Trust is a popular alternative to a basic Last Will and Testament. A Living Trust offers a few more benefits than a Will, including circumvention of probate and privacy for you and your heirs. There is one benefit, however, that Wills and Living Trusts do not provide: asset protection. Assets in your Living Trust have absolutely no protection from potential creditors.

Why

When you create a Revocable Living Trust, you become the trustor, trustee and beneficiary. You will remain as the Trustee while you are in good mental health. You will remain as the beneficiary for the duration of your life.

At any time you can fund items into your Trust and remove them. Unlike an Irrevocable Trust, items within your Trust remain completely in your control and are considered part of your legal estate. For this reason, your assets can be taken out at any time to settle a judgement against you.

Potential Threats
There are various possible threats to the assets in your Living Trust. For example, if at anytime during your life a creditor receives a judgment against you, you and a spouse divorce or you are the defendant in a negligence lawsuit, assets within your Living Trust may be taken to settle your debt.

Without additional planning, once you pass away, your heirs will also have the potential to lose the Trust funds that they inherit to their own debts, divorcing spouses or lawsuits.

Alternatives
If you want to protect some of your assets from creditors, a possible divorce and lawsuits, you should speak with your attorney about the best asset protection methods for you. Your attorney will help you determine what you will need to protect for your retirement years and what you should protect for your heirs. Some protection methods include Irrevocable Trusts and Family Limited Liability Companies.
Roger Levine, Estate Planning Attorney
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