Many people mistakenly believe that simply transferring their assets into a revocable living trust protects them from lawsuits. The truth about asset protection is crucial to understand because this is a myth with revocable trusts and lawsuits are not prevented by them.
A House Isn’t Free—Even If You Inherit It
While trusts can shield an inheritance for beneficiaries, a revocable trust does not protect your assets from your own creditors. Because the trustor (trustmaker) can revoke or amend the trust at any time and often acts as the trustee, courts typically rule that creditors can access trust assets just as they could before, especially when it concerns revocable trusts facing lawsuits.
Why Should You Still Have a Revocable Living Trust?
Even though a revocable trust won’t provide lawsuit protection, it remains an essential estate planning tool. Here’s why:
- Protecting Your Beneficiaries – You can place restrictions on inheritances to safeguard assets from your beneficiaries’ creditors, lawsuits, and divorcing spouses.
- Planning for Incapacity – A trust ensures that your assets are managed according to your wishes if you become incapacitated, avoiding court intervention.
- Avoiding Probate – Assets in a properly funded trust pass directly to beneficiaries, bypassing probate and reducing delays, costs, and stress.
- Maintaining Privacy – Unlike a will, a trust keeps estate details private by avoiding the public probate process, but remember, revocable trusts might still be vulnerable to lawsuits.
Tools That Can Help
Proactive planning can ease the burden on your loved ones. Consider:
- Joint ownership with rights of survivorship, which offers clarity but carries gift tax and creditor risks.
- A trust with a right of occupancy, allowing someone to live in the home for a set time while the trust covers costs.
- A Transfer-on-Death (TOD) deed, also known as a beneficiary deed or ladybird deed in different states which bypasses probate in some states. Such deeds are not available in all states, and it’s important to consider how they relate to potential lawsuits when combined with revocable trusts.
How to Protect Your Assets Beyond a Revocable Trust
To safeguard your wealth and assets from lawsuits and creditors, consider these additional strategies:
- Liability Insurance – Policies such as umbrella, homeowner’s, auto, and business insurance can provide critical protection.
- Limited Liability Companies (LLCs) – Business owners and real estate investors can use LLCs to separate personal assets from business liabilities, unlike revocable trusts that don’t protect assets from lawsuits.
- Domestic Asset Protection Trusts (DAPTs) – In certain states, DAPTs offer stronger asset protection for individuals with significant wealth or high-risk professions, in contrast to the limitations of revocable trusts in lawsuits.
Take the Right Steps to Protect Your Wealth
A revocable living trust is a powerful estate planning tool—but it’s not a substitute for proper asset protection strategies. If you’re concerned about shielding your assets from lawsuits, contact us today for a comprehensive estate and asset protection plan tailored to your needs, taking into account the nuances of revocable trusts and the threat of lawsuits.
