A common myth is that you can protect your assets from creditors and legal judgments by putting everything into a revocable living trust. It is more complicated than that.
Wealthy people are justifiably concerned with shielding their assets from creditors and liability lawsuits. When you have worked hard to obtain wealth, you do not want to lose it all.
Some people think that if they get a revocable living trust and put all of their assets into the trust, then no one else can get to those assets.
However, as Market Watch points out in “Why your revocable trust is not protecting your assets,” it is not as simple as that.
Revocable living trusts are primarily designed as estate planning tools, not as asset protection vehicles. Because the trusts can be revoked by you at any time, creditors can normally get to the assets in them. A court just needs to order you to take the assets out and pay the creditors.
Even that is an oversimplification because trusts are governed by state law. Whether a person can be forced to take assets out of a trust by a creditor varies greatly from state to state. It is often a matter of very specific language that needs to be written into the trust if you are to have any hope of protecting assets in the trust from creditors.
It is of course often possible to protect some assets from creditors. A revocable living trust, however, is normally a poor way to go about it.
If you are going to get one, do so because they are excellent estate planning tools not because they are a great way to shield assets.
Reference: Market Watch (Aug. 12, 2016) “Why your revocable trust is not protecting your assets”
