Using an Irrevocable Trust as an Asset Protection Tool

If you have assets that you want to make sure are enjoyed by your family for years to come, even after you’re gone, you may have heard what a valuable tool a trust can be. As the name implies, a trust holds property in trust for the use and enjoyment of the people you designate.

But what about your creditors? If you pass and have a handful of creditors looking to be paid, what happens to the money or assets that you put in the trust?

Protecting Assets From Creditors

If you’re leaving property for loved ones in a trust, the last thing you want is for your creditors to be making a claim on that property, and taking or depleting it before it gets to the people you left it to. The best way to do that is to create an irrevocable trust.

Trusts can be revocable or irrevocable. Very simply, the difference is whether you (as the creator of the trust) can revoke or change the trust by yourself, and without any consent or permission of others.

As the name implies a revocable trust allows you to change your mind at any time, and eliminate or change the terms of the trust. An irrevocable trust, however, does not. In many cases, an irrevocable trust will require consent of the beneficiaries (those receiving the benefits of, or assets in the trust), or consent of the trustee. Whatever the consent needed, an irrevocable trust can’t be undone by you, the creator, alone.

Why Choose an Irrevocable Trust?

So why put assets in a vehicle that you don’t have any control over by yourself? The answer is in the asset protection.

Revocable trusts are not protected from creditors. They can be reached by creditors who think you owe them a debt, whether you’re alive or not. The logic is that if you control the trust, it’s yours, so creditors can get it to satisfy your debts.

But since you don’t have full control or authority in an irrevocable trust, creditors generally can’t touch them. Giving up control of the trust also acts as a shield from your creditors. In many ways, because you’re not a beneficiary of the trust, and you don’t fully control it, the property of the trust isn’t even yours anymore. Hence, the creditors can’t take what’s not yours.

Generally, the more right over the trust property you have, and the more control over it you have, the more exposed it is to creditors. If you are the creator of the trust, and the trustee, and have the right to receive the benefits of the trust, it’s likely that creditors can reach it.

Trusts are one area where giving up some control can be a way to maximize your assets and protect them from creditors.

Do you have question about protecting assets from creditors, or making sure your family is protected by your estate documents? Contact Tampa business and probate attorney David Toback to discuss your needs and make sure your estate planning documents are up to date.