Estate Planning: Does A Trust Fully Protect Assets From Creditors?

Asset protection is a core part of estate planning. When used properly, a trust can be one of the most effective and efficient asset protection tools. You may be wondering: Will a trust fully protect assets from creditors? The answer is “it depends on what type of trust you have—only some types of trusts offer asset protection. Here, our Boston estate planning attorney highlights the key things to know about trusts and asset protection in Massachusetts.

Know the Basics: Some Trusts Offer Strong Asset Protection, Others Do Not 

Knowing the basics about trusts is essential, particularly in regards to asset protection. Not all trusts are created equal, and their protective strength varies significantly. Understanding this distinction is vital. Here is a basic of the two categories of trusts in Massachusetts:

• Revocable Living Trust (No Asset Protection): A revocable living trust is a popular choice in estate planning. It offers key benefits, such as the ability to avoid probate. However, a revocable trust offers no asset protection. The trust creator (called the “Grantor”) of the trust maintains control over assets and can modify the trust at any time. If a Grantor is sued, the assets within a revocable living trust can still be targeted by creditors. It can be an effective estate planning tool, but not for the purposes of asset protection.
• Irrevocable Trust (Potential for Asset Protection): On the other hand, an irrevocable trust often does provide strong asset protection. With this type of trust, the assets placed within it technically (and legally) no longer belong to the grantor. Instead, they are owned by the trust itself. Because of this transfer of ownership, creditors usually cannot access these assets. Of course, there is a trade-off. The grantor loses control and flexibility in exchange for strong asset protection. To the extent that the Grantor maintains control over trust assets, for example, has the ability to access income and/or trust principal, the assets are accessible to creditors.  In order to “firewall” assets in an irrevocable trust, the Grantor must make a “completed gift” and have no access to principal or income. 

Asset Protection is Complicated: You Need a Comprehensive Estate Plan 

Navigating the complexities of asset protection requires careful planning and a comprehensive, personalized approach. While setting up the right kind of trust is a significant step, it is just one piece of a broader estate plan puzzle. Other considerations—including things like a will, powers of attorney (POA), healthcare directives, and tax planning—should be addressed as well.

Remember, asset protection is not solely about shielding your wealth from potential lawsuits or creditors; it is also about ensuring a smooth transition of your estate to your heirs while minimizing tax burdens. A well-designed estate plan that is tailored to your specific circumstances can provide peace of mind and security for your legacy. A Massachusetts estate planning lawyer can help. 

Call Our Boston Estate Planning Attorney for Immediate Help

At Fisher Law LLC, our Boston estate planning lawyers are reliable, diligent advocate for people and families. If you have any questions about trusts and asset protection, we are here to help. Call us now or connect with us online for your strictly confidential initial consultation. We provide trust planning and estate planning services throughout Greater Boston, including Suffolk, Norfolk, Middlesex, and Plymouth County.