The answer is NO, except when the answer is maybe. I’ll explain why a revocable trust generally doesn’t protect assets and circumstances where a revocable trust can protect assets.
Revocable trusts are still amazing tools for estate planning and most people need one as part of their foundational estate planning. However if asset protection is the goal, you need to plan differently. The key word is “revocable.” You have the right to revoke your anytime and take the assets back. It’s essentially treated as if the assets were in your name and there is no creditor protection. So if your home or other assets are in your revocable trust, they’re not protected if you have a personal lawsuit or creditor problem.
Separate Revocable Trusts
While there is no asset protection for your own revocable trust. If one spouse has higher liability exposure, they may choose to create 2 separate revocable trusts (instead of a single joint trust). When done properly, your creditors cannot reach the assets in your spouse’s trust and vice versa. For example, if you are in a high liability profession, you could title your home and savings in your spouse’s trust and keep your business in their own name or in your own trust. If you are sued, the home and savings are not exposed. However, if your spouse is sued, the home and savings are exposed. If your spouse has little likelihood of liability exposure, this may be a good option, especially if she has insurance to cover her likely liabilities. This may not be enough to give you peace of mind so you may still decide to use an irrevocable asset protection trust.
Asset Protection Upon Death
Upon death your revocable trust becomes irrevocable. This gives you opportunities to build in terms to protect the trust assets for your beneficiaries. Beneficiary trusts allow you to build protection into your plan. Rather than distributing the assets directly to your children upon your death (where they could be exposed), the assets could be held in trust for them. You could design your trust to split into equal shares for your children to be held in trust. The children will have access to their inherited share while still having protection from bankruptcy, lawsuits, and divorce (if done properly). You can also design your revocable trust to be protective to your surviving spouse upon your death. There are flexible opportunities for protective planning with your revocable trust upon your death.
Remember, a revocable trust does not provide asset protection to the person who created it. If you want asset protection, you’ll need to plan carefully. The most expensive plan is the one that doesn’t work. When considering your situation, liability exposure, and assets, there are many options available to construct a solid estate plan. Your can incorporate asset protection in addition to probate avoidance and inheritance planning. Contact us for a free consultation.