Living Trusts Are Revocable And Not An Asset Protection Tool

This great post comes from Jennifer N. Sawday of The California Estate Planning Blog.

Her post is titled: Living Trusts Are Revocable And Not An Asset Protection Tool and describes a fundamental (and often misunderstood) aspect of asset protection planning – if you have relatively unfettered access to your money, so do your creditors. It comes up all the time, she writes.

A call comes in from a potential client: “I need to set up a living trust now to protect my assets.”
Generally, if the person (called the settlor) who created the living trust and transfers property to this living trust has retained the right to revoke the living trust then he also retains an interest in the trust assets. There is no protection from outside entities or creditors regarding what has been transferred into the living trust.

In other words, a living trust is known as a revocable trust. As such, living trusts are not considered a vehicle for asset protection. A living trust is used mainly to allow assets to transfer at death without going through probate or to allow a co-trustee or successor trustee manage assets in the event of incapacity of the settlor of the trust.