Are Living Trusts Exempt From Lawsuits?

By Heather Frances J.D.

Trusts can provide many advantages for asset protection, as well as easing the transfer of property from one generation to the next. However, not every trust protects assets from creditors or lawsuits. Testamentary trusts, which only become active after your death, can protect assets from your beneficiaries' creditors. However, living trusts, created during your lifetime, only provide protection from lawsuits against you if the trust is irrevocable.

Trusts can provide many advantages for asset protection, as well as easing the transfer of property from one generation to the next. However, not every trust protects assets from creditors or lawsuits. Testamentary trusts, which only become active after your death, can protect assets from your beneficiaries' creditors. However, living trusts, created during your lifetime, only provide protection from lawsuits against you if the trust is irrevocable.

Revocable versus Irrevocable

A living trust can be revocable, meaning you can amend or revoke it at any time, or it can be irrevocable, which means that the trust is permanent and cannot be evoked, altered or amended. With an irrevocable trust, you lose your ability to control your assets and can't take them back, although you can still benefit by receiving some of the income from the trust's assets, depending on state law. To protect your assets from lawsuits, your living trust must be irrevocable. Since you lose control over assets in an irrevocable trust such that they are no longer in your actual possession, they are generally not subject to lawsuits against you. Assets placed in a revocable living trust are subject to lawsuits and creditors just as if you owned them in your name.

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Can a Trustee Revoke or Amend a Revocable Trust in Colorado?

References

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Living Trust Guidelines

A living trust is a way of managing assets, a tool used primarily in estate planning. It offers a number of advantages over a last will and testament, including greater flexibility in the management and distribution of your assets. Living trusts are governed by state laws and these laws differ slightly from state to state.

Blind Trust Vs. Revocable Trust

A trust is a legal structure used to safeguard assets. Revocable trusts and blind trusts serve distinctly different functions. Trust law is very state-specific; those with questions about setting up a particular trust should enlist a local legal professional or an online drafting service.

Can a Living Trust Protect a Home From a Lawsuit?

A living trust refers to any type of trust you create during your lifetime rather than having it take effect upon your death. Transferring the title of a home to a living trust will only protect it from a lawsuit judgment if the terms of the trust are irrevocable. However, most state trust laws allow attachment of the home by judgment creditors if the transfer is fraudulent.

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