Does A Living Trust Provide Asset Protection?

 In my law 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 revocable trust, however.
Which really brings up how asset protection is achieved. It is achieved by giving up (or not having in the first place) direct control over trust 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.  It also arises during life when a person voluntarily gives up control of his or her assets – for example, people sometimes set up an irrevocable trust and then “give away” certain assets to that trust.  In other words, the beneficiaries of your revocable living trust (usually your children) may get asset protection, so long as they do not have direct access to the trust’s assets and certain other formalities are put in place. Similarly, during life, an irrevocable trust can be established by you, where you give up the direct control and benefit of certain assets that are transferred 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 off bankruptcy. Common examples of such are for a person with disabilities who receives government benefits or for a senior who needs Medi-Cal to pay for skilled nursing care.
It’s important to note that if a parent or other loved one wants to provide concrete asset protection for their beneficiaries – no matter what kind of trust is established – that trust really needs to have a “spendthrift clause,” “trust protector” and also a “distribution trustee.” This might sound like complicated legalese, but in reality, it is not too difficult to implement such safeguards. Experienced estate planning and elder law attorneys use these provisions in special needs trusts, retirement trusts, dynasty trusts, as well as with Medi-Cal and Veterans Asset Protection Trusts.
The take away: if you want to achieve asset protection for yourself or for your loved ones, it can be done with an expertly drafted trust, where control is tailored to suit your particular circumstances.
For a free consultation regarding your family’s asset protection needs, contact Randall F. Kaiden, Esq. of Kaiden Elder Law Group, PC at 661-247-8433, or via our website: www.KaidenElderLaw.com.