We frequently get calls from prospective clients wanting to know if creating a trust will protect their assets from creditors or lawsuits. Unfortunately, they do not.
A revocable living trust is a legal arrangement whereby you hold your assets in trust to be used and managed until your death when they will be distributed to someone else. You can add assets or remove assets from your trust at any time, even revoke the trust completely and put them back into your name individually. Since you have control of your assets, creditors can reach those assets to collect on a debt.
There are some irrevocable trusts that can remove assets from your control but these cannot be revoked, hence they should be created with advice from an experienced estate planning attorney and possibly your financial advisor.
Although protection from creditors is not a benefit you can derive from a trust, there are many other benefits that make the creation of a trust something many people should consider. Such benefits include:
1. Avoidance of probate, passing assets to your beneficiaries more quickly and inexpensively.
2. Ability to dictate the terms of distributioin to include such things as charitable gifts, children’s trusts, Special Needs Trusts, etc.
3. Privacy (probate is public).
4. Can be used to manage your estate if you become temporarily or permanently incapacitated.
5. Utilization of federal estate tax exemptions for both husband and wife, reducing or eliminating estate taxes.
If you worry about your creditors being able to access your children’s inheritance once you pass away, that is a different issue. You can incorporate into your trust certain provisions whereby money would be distributed to them in increments, thereby leaving only small amounts available for creditors to try to reach and leaving the bulk of the inheritance in a trust. To discuss these or other issues about trusts or any other estate planning concerns, contact us at Law Office of Scott C. Soady, A Professional Corporation. Your first visit is always free.