The Trust Protection Myth: Does Your Revocable Trust Really Protect Against Lawsuits?

Many people mistakenly believe that once they set up a revocable living trust and transfer ownership of their accounts and property into the trust, those assets are protected from lawsuits. Unfortunately, this is not true.

While revocable trusts can safeguard your beneficiaries’ inheritance, they offer little to no protection against lawsuits or creditors seeking to access your assets. This is because:

• You, as the trustmaker, can revoke or amend the trust at any time.
• You often continue serving as the trustee, maintaining full control over the assets.

Since your authority over the trust remains largely unchanged, courts typically view the assets as still being yours, making them fair game for creditors.

No Immediate Asset Protection? Why Should You Still Create a Revocable Living Trust?

Even though a revocable trust won’t protect your assets from lawsuits during your lifetime, it’s still an essential estate planning tool. Here’s why:

1. Protecting Your Loved Ones’ Inheritance:
   1. While your own assets remain vulnerable, the trust can shield your beneficiaries’ inheritance.
   2. You can add restrictions or conditions that prevent creditors, predators, or divorcing spouses from accessing the inheritance, ensuring the beneficiary's financial security.
2. Incapacity Planning:
   1. A revocable trust allows you to name a successor trustee to manage your affairs if you become incapacitated (unable to manage your own finances).
   2. This avoids the need for court-appointed guardianship, ensuring your wishes are honored and saving your loved ones time, money, and stress.
3. Probate Avoidance:
   1. By properly funding your trust, the assets held within it can bypass the probate process entirely.
   2. This minimizes the time, expense, and complexity of settling your estate. Your loved ones will gain faster access to their inheritance.
4. Privacy Preservation:
   1. A revocable trust helps you keep your estate details private.
   2. Unlike probate, which is a public legal process, trust administration keeps the distribution of your assets confidential.

Strategies to Protect Your Assets Without a Revocable Trust

Since a revocable trust won’t shield your personal assets from lawsuits or creditors, it’s wise to incorporate additional asset protection strategies into your estate plan, such as:

Insurance Coverage:

• Homeowners’ or renters’ insurance: Protects your property from liability claims.
• Umbrella insurance: Provides extra liability protection beyond your standard coverage.
• Auto insurance: Shields you from financial exposure in the event of an accident.Business insurance: Protects against claims related to your company.
• Disability and life insurance: Provides financial security for your loved ones.

Business Entities:

• If you’re a business owner or real estate investor, using business entities like limited liability companies (LLCs) can offer an additional layer of protection.
• LLCs separate your personal and business assets, making it harder for creditors to go after your personal property.

Domestic Asset Protection Trusts (DAPTs):

• In some states, DAPTs can provide additional protection from creditors.
• Unlike a revocable trust, DAPTs offer genuine asset protection by limiting your control over the trust while still allowing you to benefit from the assets.

The Bottom Line: A Revocable Trust Protects Your Loved Ones—Not You

While your revocable living trust won’t safeguard your personal assets from lawsuits, it remains a powerful tool for protecting your beneficiaries, avoiding probate, and ensuring privacy.

To achieve full asset protection, you’ll need a comprehensive estate plan that combines your trust with insurance coverage, business entities, and other legal strategies.

Reach out today to review your existing plan. We’ll help you identify potential gaps and create a customized strategy to secure your financial future and protect your loved ones.