Clients sometimes ask whether their revocable trust will protect their assets against creditors. Unfortunately, the answer to this question is generally “No.” The reason is that a revocable living trust requires all of your assets to be transferred to an entity (the trust) that you are in complete control of. You can amend it at any time, you can revoke the trust at any time, you get all the income and all the principal from the trust. In other words, there is no limit to what you can and cannot do with the assets in your living trust. As a result, the law treats you and your living trust as one and the same.
Therefore, in the event of any type of creditor action (i.e. judgment, bankruptcy, spousal claim in divorce), the assets in your trust are treated as though they belong to you – the individual. While there are some trusts out there that may offer creditor protection in limited circumstnaces (i.e. certain irrevocable trusts), the revocable living trust does not offer this protection.
There are many other benefits, however, to having a revocable living trust. If you have any questions about the revocable living trust please contact one of our estate planning attorneys at the Law Office of James F. Roberts & Associates at (714) 459-5481.