Revocable living trusts are very useful estate planning devices, but they do not serve every possible purpose. If you want to position assets in a way that protects them from creditors and litigants seeking redress, you would want to look for different legal instruments because revocable living trusts do not provide asset protection for the Trustor.
What is the value?
Revocable living trusts are largely utilized to enable probate avoidance. Probate is a legal process, and it takes place under the supervision of the probate court that is local to the decedent.
You may have seen scenes in movies and on television depicting a grieving family gathering around for a “reading of the will.” It really doesn’t work that way in real life. The executor that was named in the will must admit it to the probate court so that the estate can be probated.
In a general sense, all of the property that the decedent personally owned at the time of his or her death is going to be probate property. The executor inventories these assets and takes care of any final debts that may be outstanding. This would include tax payments.
If no one challenges the will, the executor will prepare these assets for distribution to the heirs to the estate. This can include appraisals and property liquidation. All of this costs money, and the executor is entitled to payment, as is the probate lawyer that he or she will probably engage. Probate expenses can oftentimes consume a noticeable portion of the estate.
Ultimately distributions of the assets will be made, but it can take quite a bit of time. In simple cases, it is going to take a number of months, and complicated cases have been stalled in probate for numerous years. For example, the Anna Nicole Smith versus the Marshall family situation was in limbo for some 15 years.
In addition, everyone who may be interested can know everything about the estate when it goes through probate because the entire probate becomes a matter of public record.
You may avoid expenses, save time, and retain privacy when you use a revocable living trust to arrange for asset transfers outside of probate. However, you won’t be protecting the assets from your creditors (although asset protection can be provided in your revocable living trust for your heirs if done properly).
Why doesn’t a revocable living trust provide asset protection for the person creating the trust?
The reason why assets that have been conveyed into a revocable living trust are not protected from your creditors is because of the fact that you are retaining control of the funds. As the name implies, the trust is revocable. You can dissolve it at any time and do anything that you want to do with the money.
Because of this control, people or entities that are seeking redress can legally attempt to attach funds that have been conveyed into a revocable living trust.