Does transferring your assets into a Revocable Living Trust protect them against creditors, lawsuits, and divorce? The answer to this question is a resounding NO - a Revocable Living Trust offers absolutely no asset protection for you and your property.
Creditors Can Grab Assets Held in a Revocable Living Trust
Why can a creditor grab property owned by your Revocable Living Trust? For two reasons:
- Since the trust is "revocable," you can change the terms of the living trust agreement at any time and put assets into the trust and take them out. Thus, a Revocable Living Trust offers no asset protection since a creditor can force you to take property out of your trust to pay off the judgment that the creditor gets against you.
- For all intents and purposes, you still personally own the assets titled in the name of your Revocable Living Trust since you created the trust and funded it with your assets, all for your own benefit as the trust beneficiary and Trustee.
Techniques Used for Asset Protection Planning
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 property to be exempt from creditors' claims.
Depending on the laws of your state, asset protection planning could include the following:
- Investing in your primary residence
- Buying life insurance that accumulates a cash value
- Funding retirement accounts, including IRAs and 401ks
- Purchasing annuities
- Setting up a family limited liability company or family limited partnership
- Titling assets in your spouse's sole name or as tenants by the entirety
- Creating one or more irrevocable trusts, not revocable trusts
Unfortunately, a Revocable Living Trust offers your property no asset protection whatsoever and therefore can't shield your property from the claims of your creditors or a divorcing spouse. In fact, you'll have to go quite a few steps beyond your basic Revocable Living Trust in order to create an advanced estate plan that will provide comprehensive asset protection planning for you and your property.