Will a Revocable Living Trust protect against creditors?

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Understanding the benefits of a revocable living trust is important. Although a revocable living trust has many functions, creditor protection is not one of them. Placing your assets into a revocable living trust does not protect them from your creditors.

A revocable living trust is a trust you create during your lifetime. The trust is funded by transferring ownership of your assets to the trust. You still have control of the trust assets, however. You can add or remove assets from the trust and amend or revoke the trust at any time.

Because of the control you have over the trust and its assets, you are still treated as the legal owner of the trust assets. Creditors are allowed to enforce awards against your assets even though you have put them in the name of your revocable living trust.

A type of trust that can protect assets from your creditors is an irrevocable living trust. With an irrevocable trust, once the trust is created and funded, you are no longer treated as the legal owner of the assets you transferred to the trust and can no longer control how those assets are distributed. Unlike a revocable trust, you cannot unilaterally modify or revoke an irrevocable trust. This change in ownership means future creditors cannot satisfy a judgment against the assets held in the irrevocable trust.

Other forms of asset protection planning include:

  1. Funding retirement accounts
  2. Purchasing annuities
  3. Purchasing life insurance that builds cash value
  4. Investing more in your primary residence
  5. Setting up a limited liability corporation (LLC) or limited partnership (LP)

A court can rescind transfers, to a trust or otherwise, if the transfers were made with the intent of defrauding current creditors. These are viewed as fraudulent transfers and can result in significant penalties.

It is important to practice asset protection planning before you are exposed to any creditor liability. Working with an experienced estate planning attorney is important before attempting any form of asset protection. Contact the Estate Planning attorneys with the Law Offices of Nay & Friedenberg in Portland, Oregon at (503) 245-0894 to set an appointment.

If you would like to learn more about estate planning, click here to receive our FREE Legal/Financial Planning Guide.