WARNING: Many people believe once they set up a Revocable Living Trust and transfer assets into the Trust, those assets are protected from lawsuits. This is absolutely not true.
A trust’s creditor protection depends on its terms and applicable law. Under N.J.S.A. 3B:31-39, a revocable trust’s property remains subject to the creator’s creditors during the creator’s lifetime. Protection for other beneficiaries is a separate question.
No Immediate Asset Protection? Why Should You Create a Revocable Living Trust?
A properly drafted and funded revocable living trust can serve several estate-planning goals:
- Appropriate spendthrift or discretionary terms may protect assets held for a spouse or children, subject to legal limits. Protection does not automatically continue after distribution to a beneficiary.
- An incapacity plan can authorize a successor trustee to manage trust property under the trust’s terms. It can reduce the need for court involvement but cannot guarantee that no court proceeding will be necessary.
- Property properly transferred to your living trust can pass outside probate. Assets left in your individual name may still require probate unless another transfer arrangement applies.
- Trust administration can offer more privacy than probate, but complete confidentiality is not guaranteed. Beneficiary information rights, litigation, and other legal requirements can require disclosure.
What Can You Do to Protect Your Assets?
Comprehensive estate planning has a solid foundation of insurance, including homeowners/renters, umbrella, auto, business, life insurances, disability, and the like. Business entities such as a limited liability company may address particular business risks. Domestic Asset Protection Trusts are authorized under some states’ laws, including Delaware’s qualified-disposition rules. Their suitability for a New Jersey resident requires review of governing law, retained rights, creditor claims, and transfer timing; protection is not assured.
A revocable living trust can support probate and incapacity planning, with appropriately drafted provisions for loved ones. Personal creditor protection requires a separate assessment of insurance, ownership arrangements, and applicable law. Contact Willis Law Group to discuss your estate planning and asset protection goals.
