Debt is far from uncommon. The total amount of personal debt in the United States is over $14 million with the majority of Americans having some type of debt. Because of this, many have to worry about creditors coming after their assets. Additionally, some might worry that a lawsuit will eat away at their assets, especially those in careers where the chances of being involved in litigation are much higher. To help protect assets from creditors and lawsuits, a trust may be beneficial.
While trusts are often used to distribute assets and avoid probate, protecting assets is another important reason why many choose to establish a trust. However, trusts can’t always protect your assets from those seeking to diminish them. Learn more about when trusts can protect assets.
Revocable Living Trusts
Revocable living trusts are often the most common type of trust due to the amount of control they give the grantor. With a revocable trust, you can name yourself as the trustee, so you maintain control over the assets in it. As trustee, you can change the trust as you wish and remove assets from it. Grantors of revocable living trusts name a successor trustee to take over the trust and distribute its assets to beneficiaries after the grantor passes away.
While the assets are in a trust, a revocable living trust that you are the grantor and trustee of means that you are still seen as the owner of the assets. As the law still sees you as the owner of the assets, rather than the trust, creditors can still come after these assets. There are great benefits to establishing a revocable living trust, but if you’re looking for asset protection, these trusts can’t help.
Unlike a revocable trust, with an irrevocable trust, the assets you place in it are owned by the trust, not you, as the grantor. After you create an irrevocable trust, you no longer have control over its assets and are unable to change the terms of the trust without permission from the beneficiaries. Because of this, an irrevocable trust can be used to protect assets from creditors and lawsuits.
Tennessee also has its own domestic asset protection trust, the Tennessee Investment Services Trust (“TIST”) to protect assets from creditors. While the TIST is an irrevocable trust, it allows grantors to still maintain a certain level of control over the trust’s assets.
Irrevocable trusts can help protect your assets from creditors, but they do have some limitations regarding asset protection. In some cases, it is possible for creditors to still access assets placed in an irrevocable trust. Creditors may be able to prove that the trust is fraudulent, which can lead to serious consequences.
Consult with Our Experienced Trusts Attorneys
If you want to create a trust to protect your assets, you need a seasoned trust attorney to help you. At MHPS, we know the value that revocable and irrevocable trusts can have for many people in a range of different situations. Trusts can be complicated, as well as knowing which one is right for you. If you’re considering creating a trust, we can answer all your questions and help you through this process.
Contact our trust attorneys today for assistance.