Can a trust protect your assets from loss?
According to the lawyer advertising and the self-help books, everyone needs a revocable trust.
The asset protection industry loves irrevocable trusts to get assets out of your name so your creditors can’t reach your wealth.
So, do trusts work in bankruptcy to change the rights of debtors and their creditors?
Not so much.
What’s a revocable trust
A revocable trust is also called a living trust. It’s created during the lifetime of the person putting their assets in trust.
The settlor, the person creating the trust, can unwind the trust altogether. Or, the settlor can extract one or more assets from the trust. It’s revocable.
The appeal of a revocable trust is that assets owned by a trust don’t need to be probated at the settlor’s death. The terms of the trust determine who gets the trust assets.
I find revocable trusts useful to manage assets of the aging or the incapacitated.
Title to trust assets in a revocable reads: George Smith, Trustee. The asset appears to no longer be George’s asset, personally, but the asset of his trust.
Many people would like to think that George’s creditors can’t reach the asset if George doesn’t pay his debts. Is it so? [Read more…]