Does A Living Trust Provide Asset Protection?

I get asked this question quite often. And my answer is always no: You do not get 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 protection is available with trusts, even with a living trust. That protection is not available to the person who set up the revocable trust, however.
Which really brings up how asset protection can be achieved. That is, asset protection might be obtained by giving up direct control over trust assets. This occurs when a revocable living trust becomes irrevocable – for example, at the time when the person who set up the trust passes away, or other triggering event occurs. Asset protection may also be obtained 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 a living trust might obtain creditor protection on assets left to them, 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 Veteran who needs Veterans Pension Benefits to help pay for long-term care or for a senior who needs Medi-Cal to pay for skilled nursing care. Experienced estate planning and elder law attorneys also utilize asset protection provisions in special needs trusts, retirement trusts, and dynasty trusts.
For help with California asset protection planning, contact Randall F. Kaiden, Esq., of Kaiden Elder Law Group, at 661-247-8433, or via our website: www.kaidenelderlaw.com.