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.

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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What Items Should Be Put Into a Living Trust?

A living trust is created during a person's lifetime and comes in two types: revocable and irrevocable. A revocable trust allows you to freely transfer your property in and out of the trust. By contrast, the maker of an irrevocable trust cannot serve as trustee or exercise control over the trust's assets, so irrevocable trusts are less flexible than revocable trusts. Many people fund their revocable trusts with their most valuable assets, which usually include the family home, bank accounts and investments.

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

If you are looking for a way for your estate to avoid the costs and complications of a court-supervised probate process after your death, a revocable trust could help. When you put all your assets into a Colorado revocable trust, or living trust, the trust safeguards those assets and pass directly to your beneficiaries upon your death. Revocable trusts give you flexibility because you retain authority to amend or revoke them.

What Is Diversion of Property From a Trust?

Diversion of trust property is a legal term used to describe the misapplication or misuse of trust property. Not only does diversion of trust property violate the terms of the trust itself, but it's often a criminal act. A trust agreement forms a contract between the person who sets up the trust in the first place, the trustee and the beneficiary. The trustee has a fiduciary duty to act in the best interests of both the trust and its beneficiary.

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