How Judgments Affect Assets in a Trust
While you may believe a revocable living trust can protect your assets, in truth, a creditor, a judgment holder or even your ex-spouse can force you to reach into that trust to pay off judgments and other debt obligations. The is quite different than irrevocable trusts, which permanently move your assets out of your reach--regardless of whom you may owe money to.
To be clear, you still personally own the assets titled in the name of your revocable living trust. After all, you created the trust--funding it with your property. And therein lies the rub: the things you own, creditors may take.
Asset protection is a complicated process, involving deep analysis of your long-term financial needs and estate planning goals. Therefore you must strategically position and re-position your property, in order to shield it from creditors' claims. Possible asset protection planning measures include the following:
- Investing in your primary residence. Some states provide homestead exemptions prohibiting creditors from forcing the sale of your home to satisfy debts.
- Buying life insurance that accumulates a cash value.
- Funding retirement accounts, including IRAs and 401ks. ERISA-qualified retirement accounts are typically safe from creditors
- Purchasing annuities.
- Setting up a family limited liability company or family limited partnership, and transferring ownership of assets into these entities.
In conclusion: while a revocable living trust cannot reliably protect your assets, a multi-pronged advanced estate plan, that employs combinations of the above-listed items, can provide comprehensive asset protection planning, over the long haul.