Does a trust protect assets?

When it comes to asset protection, there is a major difference between revocable and irrevocable trusts. A revocable trust can provide you anonymity, which offers some degree of asset protection. For instance, if your house is owned by your trust, and the name of your trust cannot be tied to you (e.g., your trust is title “ABC Living Trust”), then a creditor would have some difficulty discovering that you own the house. Outside of the anonymity that a revocable trust can provide, a revocable trust does not protect your assets from a lawsuit or creditors. The reason is because you legally own the assets in a revocable trust. If you are sued, then the assets you own, including any assets in your revocable trust, would be at risk.

If you want your trust to protect your assets, then you need your trust to be irrevocable. When your assets are placed in an irrevocable trust, you lose control of the assets. Assets in an irrevocable trust are owned by the trust and are under the control of the trustee. Therefore, if someone wants to sue you, they would not have access to assets held by your irrevocable trust. The only way for those assets to be at risk would be for the irrevocable trust to be sued.

A spendthrift provision is an important provision that can be added to an irrevocable trust to increase asset protection. It will keep creditors of a beneficiary from reaching trust assets and prevent a beneficiary from voluntarily or involuntarily transferring rights of the trust.