Revocable Trust Myth #4 - A Revocable Trust Protects Your Assets Against Lawsuits

True or false. If your assets are owned by your Revocable Living Trust and a creditor gets a judgment against you, then the creditor can't take the assets owned by your trust.

The answer is absolutely FALSE. A Revocable Living Trust does nothing to protect your assets against lawsuits. Why? For two reasons: (1) You, and you alone, can change the terms of the trust at any time and put assets into the trust and take them out; thus, a creditor can force you to take assets out of your trust to pay off the judgment that the creditor gets against you. (2) For all intents and purposes, you still personally own the assets titled in the name of the trust since you created the trust and funded your assets into it, all for your own benefit as the trust beneficiary and Trustee.

Asset protection planning is a complicated process involving an analysis of your long term financial and estate planning goals and then positioning or re-positioning your assets to be exempt from creditors' claims. Depending on the laws of your state, this could include investing in your primary residence, life insurance, retirement accounts, annuities and/or limited liability companies; titling assets in your spouse's sole name or as tenants by the entirety; and/or setting up one or more irrevocable, not revocable, trusts. Unfortunately, a Revocable Living Trust can't shield your assets from the claims of your creditors - you'll have to go quite a few steps beyond your Revocable Living Trust to create a comprehensive asset protection plan.

• What is Asset Protection?


• Asset Protection Planning for Your Spouse and Other Beneficiaries


• What's the Difference Between a Revocable Trust and an Irrevocable Trust?


• Revocable Trust Myths