In my practice, I get this question almost every week. And my answer is always no: You do not get any creditor protection from a revocable living trust. This upsets people sometimes because they really want that protection and they have "heard" they can get it with a trust.
I believe people are confused because sometimes asset (i.e. creditor) protection is available with trusts, even a revocable living trust. That protection is not available to the person who set up the trust however. It is later available to beneficiaries, it there is a spendthrift clause and those beneficiaries have limited access to the trust assets.
Which really brings up how asset protection is achieved. It is achieved by giving up the control and benefit of such assets. This occurs when a revocable living trust becomes irrevocable (for example, the person who set up the trust passes away or other triggering event occurs) or during life people sometimes set up an irrevocable trust and voluntarily give up the control and benefit of their asset(s).
So the beneficiaries of your revocable living trust (usually your children) get some asset protection so long as they do not have access to the trust assets. If they can't reach it, neither can a creditor. Similarly, during life, an irrevocable trust can be established by you, where you give up the control and the benefit of the assets you transfer to that trust. Most of the time this is not appealing to people. Sometimes however, it is necessary to preserve a person's lifestyle and stave of bankruptcy-for example, for a person with disabilities who receives governments benefits. More commonly perhaps, irrevocable trusts are set up as a means to reduce estate, gift, and transfer taxes. In other words, people "give up" the asset, so it is out of their estate and is therefore not transfer taxable. I could go on and on about the different types of irrevocable trusts and the creditor protection available but I see that that is not really your goal.
Your goal is to protect yourself from life's unforeseen problems. It is something we would all like but unfortunately it is hard to fully insulate ourselves from lawsuits. Still, their are steps that can be done to help you sleep at night. First, to limit the chances of someone attaching your assets, purchase great insurance. I always tell my clients to up their car insurance. Make sure you are with a good insurance company and have at least a $1 million dollar umbrella policy. Similarly, if you own property, make sure you have great insurance on that property. For your health, make sure you carry excellent health insurance at all times. If you own a business (especially if it is a business with high risk), make sure you set up an appropriate entity like an LLC to house the assets of that business and run the business through that entity, properly-so that it is not later pierced. These items will limit your risk with regard to car accidents, health care costs, problems on any property you own, and businesses you run.
As far as bankruptcy and divorce, that is harder. So are tax problems/liens, etc. But these problems might be thought of items that you have control over as opposed to the aforementioned issues that could happen as result of events out of your control. If you have control, it is best to be prudent in your decision making. Prior to marriage, get a pre-nuptial agreement and be careful about who you marry. When making investments, my opinion is that you should be conservative. You still could have medical problems and other unforeseen circumstances, but exercising caution, carrying insurance, and being conservative, will limit your chances for being personally liable and will help you preserve your economic future.
Sorry, but this is not something you can do with a living trust. With a living trust, you retain so much control over the assets that you are legally treated the same way in terms of creditors, bankruptcy and divorce.
Assets in an irrevocable trust are often protected from creditors. Setting up this kind of trust is not to be undertaken lightly, however, and you would need to consult with an estate planning attorney before considering this.
*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.
A trust that has you as the trustee and beneficiary won't protect the assets from your creditors. If you have a living trust where your kids are the beneficiary, and you don't do it on the eve of being sued, then you get some protection. You'll need to see a good estate/probate attorney.
I'm not your attorney; my answer to your question includes assumptions. If you want me to be your attorney, I'm easy to find.
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