Living trusts are often mistakenly touted as a way to protect your assets from creditors and lawsuits. However, it is important to understand that living trusts do not offer complete protection. In fact, in some cases, a living trust may actually make it easier for creditors to seize your assets.
What is a living trust?
A living trust is a legal document that allows you to transfer ownership of your assets to a trustee, who will manage them on your behalf. You can name yourself as trustee, or you can choose someone else, such as a trusted friend or family member.
Once you have created a living trust, you can transfer assets to the trust by signing a deed of transfer. Once the assets have been transferred to the trust, they are no longer considered to be part of your personal estate. This means that they will not be subject to probate after you die.
Can a living trust protect your home from creditors or lawsuits?
Whether or not a living trust can protect your home from creditors or lawsuits depends on a number of factors, including the type of trust you have created and the laws of the state in which you live.
In general, revocable living trusts do not offer much protection from creditors or lawsuits. A revocable living trust is a type of trust that you can change or revoke at any time. Because you still own the assets in a revocable living trust, creditors and lawsuit plaintiffs can still come after them.
Irrevocable living trusts, on the other hand, can offer more protection from creditors and lawsuits. An irrevocable living trust is a type of trust that cannot be changed or revoked after it has been created. Once you have transferred assets to an irrevocable living trust, you have given up all ownership and control of those assets. This means that creditors and lawsuit plaintiffs will have a much more difficult time seizing those assets.
However, it is important to note that even irrevocable living trusts do not offer complete protection from creditors and lawsuits. For example, if you are sued for fraud or other intentional wrongdoing, a court may be able to order you to transfer assets from your irrevocable trust to satisfy the judgment.
What alternative methods or tools are required to protect your assets from a lawsuit?
There are a number of alternative methods and tools that you can use to protect your assets from a lawsuit. Some of the most common options include:
- Asset protection trusts: Asset protection trusts are specifically designed to protect assets from creditors and lawsuits. These trusts are typically created in states with laws that are favorable to asset protection. Click Here
- Homestead exemption: Most states have homestead exemptions that protect a certain amount of equity in your home from creditors and lawsuits. The amount of equity that is protected varies from state to state.
- Umbrella insurance: Umbrella insurance can provide additional coverage beyond the limits of your homeowners and auto insurance policies. This coverage can help to protect your assets from lawsuits that result in large judgments.
Which option is right for you?
The best way to protect your assets from a lawsuit is to work with an experienced estate planning attorney. An attorney can help you to assess your individual needs and choose the best asset protection strategy for you.
Here are some additional things to consider when choosing an asset protection strategy:
- The cost of the strategy: Asset protection trusts and umbrella insurance can be expensive. It is important to weigh the cost of the strategy against the potential benefits.
- The complexity of the strategy: Asset protection trusts can be complex to set up and maintain. It is important to choose a strategy that you understand and that you can afford to maintain.
- The laws of your state: Asset protection laws vary from state to state. It is important to choose a strategy that is compliant with the laws of the state in which you live.
If you are concerned about protecting your assets from a lawsuit, it is important to speak with an experienced estate planning attorney. An attorney can help you to choose the best asset protection strategy for your individual needs.
Serious asset protection is more customized and provides shifts in law and battlefield. The best time to do this type of planning is before there is a crisis and we've done well for a number of clients over the last 2 + decades and can be seen here with case results you might relate to.