Do Revocable Or Living Trusts Protect Assets From Creditors?

No, they are not. In a revocable trust, the person would be able to take things in and out as much as they wanted, and they would be able to do anything they wanted, meaning they would have the right to amend it, add the property, remove property or do anything else they wanted to do to it.

The general rule when talking about creditor protection or asset protection is that the creditors, predators, in-laws and outlaws would have access to everything that the person themselves had access to. If the trust stated the person could go in and get the money or get the house, then if a creditor came along, the person would not be able to tell the creditor they could not have it because it was in the trust because the trust would actually say they could have it.

Let us suppose someone had a million dollars. If someone like a creditor came after that person and asked them to give them a million dollars, then the person would be able to say no they could not do that, and in that case it would be legitimate because the trust stated that the person themselves could not have that million dollars, so therefore they would not be able to take out the million dollars because it was not theirs to take out.

Would The Beneficiary’s Creditors Have Access To Whatever Is In The Trust After The Person Passed Away?

This would depend on how the trust was drafted and if it had technically been drafted the right way. For example, let us suppose someone set up a trust for their daughters and drafted it in a way that they were trying to protect it from their creditors down the road. The planning that could be done for that next generation would be better and cheaper than any planning they could do if they came to an attorney after they got the assets.

In this situation, the daughters technically would have never touched the money, although it could be anything else also. If the person themselves died and all those assets were in a trust and the trust stated it would go into Trust A and Trust B for Child A and Child B, then, in that case, they never touched that money and their fingerprints would never be on that money.

It would go from the person’s account to theirs. The trust would just state there was a beneficiary and it would state that the trustee would have discretion, whereas these children would not be the trustee, the trustee would be somebody else. They would not be able to do anything with it, and they would not have access to it because all they would have is whatever the trustee gave them under the terms that were drafted.

Let us compare this to a situation where the person passed away and gave half of their possessions to one daughter and half to the other daughter, so the daughter ended up with all this money in a bank account. They may try to keep it separate from their spouses or whatever, and they might go to an estate planning attorney and tell them they wanted to protect that money by putting it into a trust.

The problem is that in this case they would have got their fingerprints all over the money, meaning it could be traced back to them. Let us suppose the person owed someone money at the time they had those assets in their account, maybe it was in a lawsuit or whatever. Somebody could then come back and argue that the person had the money but they moved it into a trust, meaning that they actually had the money to pay the debt.

The person who was owed money could then ask the court to make the person take it out of that trust and give it to them. There would be a difference in the two examples because in one case the person actually touched it so it could be tied back to them, whereas in the other example, it went completely around them and they never touch it.

If the person gave it to their children in trust for their benefit and they drafted it that way, then they would never be able to touch those assets physically, technically, legally or whatever, so it would never go to them.

The children would just be the beneficiaries, whereas if the person gave them a million dollars, then they would have a million dollars in their bank account that they owned. If they then decided to put it in the trust, their creditors would have a better argument to say that the person owed them some of that million dollars because it belonged to the person at some point and it was in their bank account.

In the first example, the creditor would not be able to say anything because the person never actually had the million dollars. The million dollars always stayed in the trust, and it just moved from one trust to another trust but never went to the person personally.

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