Please explain why being grantor and trustee of a trust loses protections?
I thought only if trustees are the beneficiaries then the protects are lost. If trustees are making decisions for the beneficiaries, then why does it matter where the "assets" came from since grantors "grant" ownership rights to the trust upon creation?
1 attorney answer
As I understand your question, you are wanting to know whey a Settlor (trust creator) who contributes his/her own property to a trust loses protection from lawsuits or judgment against the trust assets.
The law does not allow a person to create a trust, put their own assets in that trust, and then tell the world "you can't collect in a lawsuit against me because I have no assets--my trust owns all the assets." A trust by its nature is revocable by the trust creator. And even if the trust creator creates a self-created irrevocable trust, the court's will easily unwind the trust to pay creditors or judgment creditors.
Now, it's a different story if a trust creator creates a trust, that has a valid spendthrift clause, which also names Irresponsible Son a beneficiary. In that case Irresponsible Son's creditors and judgment creditors are generally unable to get access to Irresponsible Son's beneficial interest in the trust. Most of these types of trusts permit the trustee to suspend any and all distributions to Irresponsible Son if creditors come looking for money owed to them.
So, you can see that a person cannot create a Trust for themselves, put their own property in that Trust, and be protected from creditors. Whereas, on the other hand, a beneficiary of a Trust (who did not create the Trust) that has valid provisions protecting the beneficial interest from creditor's claims is generally permitted.