Do Living Trusts Protect Assets from Creditors?

Living trusts can be excellent estate planning tools, but they aren't necessarily going to protect your assets.

Start your living trust today

Trustpilot star rating bar
A woman wearing black and white striped shirt writing details about living trusts and how it protects assets from creditors.

Contents

Updated on: April 30, 2024
Read time: 4 min

While there are several good reasons to consider a revocable living trust for your estate plan—avoiding probate, for example—keeping your assets safe from creditors is not one of them.

To understand why, it's helpful to discuss what a revocable trust is and what it does, as well as how it differs from an irrevocable living trust—a legal instrument that actually may help you protect assets from creditors.

Aside from an irrevocable trust, there are other ways to keep creditors away from your stuff, so if you're concerned with asset protection, read on.

What is a revocable trust?

A revocable trust, sometimes called a living trust, holds the assets of a trust creator (called a “grantor," “settlor," or “trustor") during his or her lifetime. The trustor is named as the trustee.

Upon the grantor's death, the “successor trustee," who had been chosen by the trustor, facilitates the distribution of assets to the trustor's chosen beneficiaries according to the provisions of the trust documents. All of this happens outside the probate process.

Indeed, many people turn to trusts to avoid probate, the court-supervised process of distributing a decedent's estate, which can become costly and time-consuming.

Generally, trust documents do not become part of the public record, which means your affairs stay private, as opposed to what happens with a last will and testament, which goes on file for anyone to search.

Two important notes about a revocable living trust, however: (1) The trustor is still legally considered the owner of the assets within the trust; and (2) the terms of the trust can be changed or the trust canceled by the trustor at any time.

These characteristics make the assets within the trust susceptible to collection by creditors because the trustor, as far as the law is concerned, still owns and has full control over the assets. As a result, a creditor could go after the trust, seek its termination, and gain access to assets within it.

So, to be absolutely clear: A revocable living trust does not protect assets from creditors.

What is an irrevocable trust?

An irrevocable trust, on the other hand, may protect assets from creditors. In fact, you may see the term “asset protection trust" used to describe such a trust.

What's the difference? With an irrevocable trust, the assets that fund the trust become the property of the trust, and the terms of the trust direct that the trustor no longer controls the assets. Also, an irrevocable trust's terms cannot be changed, and the trust cannot be canceled without the approval of the grantor and the beneficiaries or a court order. 

Because the assets within the trust are no longer the property of the trustor, a creditor cannot come after them to satisfy debts of the trustor.

Still, it is crucial to know your state law regarding irrevocable trusts to understand exactly how well your assets are protected from creditors. Keep in mind that a court is within its power to find a transfer of assets to a trust to be fraudulent if it is done with the intent to defraud creditors. Not only could such a finding expose the trust assets to liability, but it could also mean heavy legal penalties for the trustor.

Asset protection strategies

If you are concerned with asset protection, there are several different ways to accomplish this, aside from putting your property into a trust that you will no longer have control over.

Depending on your state law, certain assets may already be protected from creditors, so you may choose to put your money into such assets. Many states, for instance, have a “homestead exemption" for the main home of an individual, which cannot be touched in bankruptcy. Most retirement accounts and pension plan funds are also usually off-limits.

Liability insurance is one of the most common ways to protect against potential lawsuits and creditors. Another option may be to create a separate business entity, such as a limited liability company (LLC) or corporation, to shield personal assets from liability.

Make no mistake: The right kind of asset protection can make a big difference in how much your creditors could collect from you, so if you have any concerns about whether you're going about things correctly, you should contact an experienced professional for guidance.

Start your living trust todayStart Now
Twitter logoFacebook logoLinkedIn logoReddit logo

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

49 days ago
Trustpilot star rating bar

Grateful to Patti Green

Patti Green helped me so much to finish my order. She was very patient and pleasant with me and guided me so well with my living trust. She made it clear and explained things that I could understand to finish this. She is an asset to your company and I would recommend her with excellence

CU
51 days ago
Trustpilot star rating bar

I had no Idea what to do to update my…

I had no Idea what to do to update my Living Trust. They answered all my questions and they also helped me get info I did not know I needed.

Bryan Q
57 days ago
Trustpilot star rating bar

Living Trust Premium

Our Representative, Stormy was fantastic! She stayed with us through the whole process. She was very helpful and thorough.

sremeikis
65 days ago
Trustpilot star rating bar

I spoke to the representative today about a Trust...

I spoke to the representative today regarding a question about an existing Living Trust. She was very helpful - told me exactly what I needed to know and how to accomplish it. As a representative in the Financial field I guide clients all the time on where to get documents done right - and its always LegalZoom - easy and effecient!

Gareth
67 days ago
Trustpilot star rating bar

LegalZoom

I was impressed by the user-friendly interface and the outstanding support I received while creating a Revocable Living Trust. The ability to connect with support representatives in real time to address my questions was incredibly valuable. For those looking to establish a straightforward trust, I can highly recommend LegalZoom.

TDM
73 days ago
Trustpilot star rating bar

Rida has been very helpful with respect…

Rida has been very helpful with respect o guiding me through the process of properly revising the Living trust for my elderly parents. His patience has been exemplary.

Frantz Michel
81 days ago
Trustpilot star rating bar

Elizabeth Tisdale

Elizabeth Tisdale, knowledgeable,been having problems with the forms in my living trust,for the past two weeks and had to pay every time, Elizabeth was patient with me and explained every detail until it was corrected,she get my 5 stars

MARIA CORONA
81 days ago
Trustpilot star rating bar

Taking the Initiative

Taking the initiative to do the info. research on our living Trust...set up back in 2016..Made the call an efficient, as well as a pleasant experience. Very thorough and friendly. Set up our atty consultation Thanks for great service!

Vicki Switzer
88 days ago
Trustpilot star rating bar

Carmen was so patient with me

Carmen was so patient with me! Thank you for all your direction and guidance with my living Trust! Great job!

Tina Garcia
91 days ago
Trustpilot star rating bar

Tammy was wonderful and very…

Tammy was wonderful and very knowledgeable. It's because of her that I am going to open a living trust with legal zoom. She was great. Thank You

Erin
99 days ago
Trustpilot star rating bar

Pleasant Experience

Patience and weel given explanation about the process of how a "Living Trust" & "Deed" works after transitioning and guidance on how to contact an attorney whenever I need legal advice.

Sharron Martin
99 days ago
Trustpilot star rating bar

Excellent LegalZoom Attorney

The LegalZoom attorney was extremely helpful in the "walk thru" assistance as I prepared the Living Trust document. The service was excellent.

customer
108 days ago
Trustpilot star rating bar

Happy with my initial contact with Legal Zoom

Rebecca fully answered my questions about creating a living trust. She is friendly and professional, and with my mind at ease, I am looking forward to starting this process with Legal Zoom. I am confident that this will be the best route for me to take to make things a lot easier for my family when I'm gone. (And, easy for me!) I plan to be in touch in the next several weeks. Thanks, Rebecca!

Carol
126 days ago
Trustpilot star rating bar

Michelle very professionally guided me…

Michelle very professionally guided me with her knowledge and amazing patience through the entire process of setting up my Living Trust. I am so relieved and grateful for her help. I have used LegalZoom before and you are my go to for legal advice. Thank you again Michelle.

Paula Bateman
134 days ago
Trustpilot star rating bar

Quality Staff

I needed to revise my entire living trust and had put it off for years. Your staff member Eden walked me through the process with such patience and concern. Had I known it would be so easy, I would have never put it off this long. A testament to you quality staff.

Ady Filipescu
143 days ago
Trustpilot star rating bar

Really great job in guiding me to…

Really great job in guiding me to finish my living trust .

Ronnie Ball
149 days ago
Trustpilot star rating bar

5 Stars

5 Stars – Outstanding Customer Service from Tammy at LegalZoom I had the pleasure of working with Tammy from LegalZoom regarding my living trust documents, and I couldn't be more impressed. She was professional, patient, and incredibly knowledgeable. Tammy took the time to walk me through every step, answered all my questions clearly, and made a complex process feel simple and stress-free. Her attention to detail and genuine care made all the difference. LegalZoom is lucky to have someone like her on their team. Thank you, Tammy!

Cn
149 days ago
Trustpilot star rating bar

Ease and help of making changes to my…

Ease and help of making changes to my living trust. LegalZoom rep walked me through the process without any difficulties. Really like working with LegalZoom.

Gregory Bechtol
156 days ago
Trustpilot star rating bar

Enjoyed working with Kevin to finalize…

Enjoyed working with Kevin to finalize our Living Trust language. His knowledge on this product certainly increases our confidence in the viability of the final document.

JOHN in CALIFORNIA
Rated4.6out of 5 based on23,759+ reviewson

Showing our favorite reviews