The Trust Protection Myth: Your Revocable Trust Protects Against Lawsuits
Many people mistakenly believe that setting up a revocable living trust and transferring their assets into it will protect those assets from lawsuits. This is not true, and it’s one of the most common misunderstandings about asset protection planning. At Pavone Law Group, we often help clients clarify what a revocable trust can and cannot do when it comes to shielding personal assets.
While trusts commonly protect a beneficiary’s inheritance, few trusts protect assets (accounts and property) previously owned by the trust maker from the trust maker’s creditors. Because the trust maker can revoke the revocable living trust and often serves as the trustee, courts may determine that creditors can still access the trust’s assets, as the trust maker’s control over them remains largely unchanged.
What is a Revocable Trust?
A revocable trust, also known as a revocable living trust, is a legal tool that allows you to transfer ownership of your assets into a trust during your lifetime while still keeping full control. You can act as the trustee, update the terms, or dissolve the trust whenever you choose.
Many people include a revocable trust in their estate plan because it offers practical benefits. It helps your loved ones avoid probate, creates a plan for managing your assets if you become incapacitated, and keeps your affairs private. However, it’s important to know that a revocable trust does not protect your personal assets from creditors or lawsuits while you are living. Since you retain control of the trust, the law still treats those assets as yours.
At Pavone Law Group, we help clients across Bloomingdale and the surrounding communities understand what a revocable trust can and cannot do. If you want peace of mind that your plan truly protects your loved ones and aligns with your asset protection planning goals, we’re here to help.
Revocable Trusts and Their Role in Asset Protection Planning
Fully funded revocable living trusts are still excellent tools. Here’s why:
- As part of a thoughtful asset protection planningstrategy, you can protect assets passing to your spouse, children, or other loved ones by placing any desired restrictions on the inheritances to ensure that your beneficiaries can still benefit without being in danger of having their inheritance accessible by creditors, predators, or divorcing spouses.
- Your trust can include a plan for managing your assets during your incapacity (when you cannot manage your own affairs), avoiding court interference, ensuring your wishes are carried out, and saving your loved ones time, money, and stress.
- A properly funded trust allows trust assets to pass to beneficiaries without going through probate court. This, in turn, can minimize the time, stress, and cost of settling your final affairs.
- By avoiding the public probate court process during your incapacity or at death, details about who is getting what will remain private.
Complementary Tools for Asset Protection Planning
Comprehensive estate and asset protection planning can be complemented with a solid foundation of insurance, including homeowner’s or renter’s, personal property, umbrella, auto, business, life, disability, and the like. For business owners and real estate investors, business entities such as limited liability companies can provide additional asset protection. In addition, domestic asset protection trusts can sometimes be used, depending on your unique circumstances.
Your revocable living trust is a powerful tool for protecting your loved ones. If you have questions about asset protection planning, call us. We can review your existing plan and determine what additional steps need to be taken to ensure that you and your loved ones have a secure financial future.
Does a Revocable Trust Avoid Probate?
Yes. One of the most practical benefits of a revocable living trust is that it can help your estate avoid probate. When the trust is properly funded, and your assets are retitled in the name of the trust, those assets can pass directly to your beneficiaries without going through the public and often time-consuming probate process.
It is important to understand that avoiding probate is not the same as protecting your assets from lawsuits or creditors. As noted earlier in this article, a revocable trust does not shield your personal assets during your lifetime. However, it can provide significant value by simplifying the transfer of assets after your death, preserving privacy, and reducing stress for your family.
At Pavone Law Group, we guide clients through the process of setting up and funding revocable trusts that support their broader estate planning goals. We also help ensure that each trust is part of a comprehensive plan that addresses both probate concerns and long-term asset protection.
Build a Stronger Asset Protection Strategy with Pavone Law Group
A revocable trust is a valuable part of many estate plans, but true asset protection often requires additional steps. Insurance coverage, business structures, and advanced legal tools may all play a role depending on your goals, risks, and the assets you want to preserve.
At Pavone Law Group, we take a personalized approach to helping clients protect what they’ve built. Whether you are a homeowner, business owner, investor, or simply want to safeguard your family's future, we can help you create a strategy that fits.
Learn more about our full approach to asset protection planning and schedule a time to talk with our team. We proudly serve individuals and families in Bloomingdale, IL, and nearby communities.