Creating a living trust helps in avoiding the costly probate process. The trust helps make sure that the beneficiaries receive the maximum possible amount from the estate.
A common confusion regarding living trusts is whether they help protect the assets from creditors. The answer is not that straightforward. Here we will explain when a living trust can be used to protect your assets from creditors, and also when it cannot serve this purpose.
Living Trusts: What are They?
A living trust refers to a trust that is created during your lifetime. You can create a living trust with the help of an estate planning attorney. There are two types of living trusts:
- Irrevocable trusts and
- Revocable trusts.
Irrevocable trusts are not changeable once made, which is the reason for the name ‘irrevocable’. The trust transfers the ownership of the asset to a third party. In other words, the grantor who has created the irrevocable trust abnegates all rights of ownership to the trust. The grantor cannot change or cancel the trust without first obtaining permission of the beneficiaries.
On the other hand, revocable trust does not involve transfer of ownership. The grantor can change the terms and agreements of the trust, and terminate the trust at any time.
Which Type of Living Trust Can Help Protect Asset from Creditors?
Keep in mind that you can use only irrevocable trust to safeguard your assets from creditors. You can’t use revocable trust for protection of assets from creditors. The reason is that a revocable trust creator remains owner of the asset. So, the creditors can force the owner to surrender the assets for debt payments. This is not possible with an irrevocable trust, since the grantor transfers the ownership to a third party.
An exception to using irrevocable trust is when the trust is created solely to protect assets from creditors. In other words, you cannot transfer title of the trust after the creditors have received a legal judgement. Irrevocable trusts can be used to safeguard the assets from future actions of the creditors.
You cannot create the trust if the creditors have already obtained a judgement. Also, in some states you cannot use this strategy if transferring the ownership of the trust makes you insolvent.
Get Help of a Professional Estate Planning Attorney
An experienced estate planning attorney will guide you through the nuances involved in estate planning. A professional attorney will inform you about the strategies that can help safeguard your assets, and ensure that your loved ones receive maximum benefits from your estate.
For professional help regarding estate plan, you should contact Chicago Estate Lawyer. We provide all types of estate planning services to residents of Chicago, IL. You can reach us by dialing 312-313-7018.