Certain types of properties are exempt from being taken away in a lawsuit. The types of exempted property depend on the laws of your trust’s jurisdiction. Other assets are not exempt. It is crucial to meet with a professional before forming a trust and transferring those non-exempt assets to the trust. In a revocable trust, the trust maker personally owns the assets.
Benefits of a revocable trust include:
- Probate avoidance
- Challenges to an estate are eliminated
- Assets are continually managed by the living trust
- Minimization of tax
However, a domestic revocable trust does not offer a high level of asset protection because its terms can be altered at any time to withdraw the assets (only certain jurisdictions like Luxembourg offer revocable trusts with high levels of asset protection because of the bank secrecy laws). As a result, these assets can be seized in a lawsuit. If creditors are aware that you have this type of trust, they can force you to withdraw property from the domestic revocable trust in order to pay off a judgment against you. Recent U.S. court cases have awarded assets to creditors and the IRS in revocable trusts. Assets were no longer in the name of the grantor, but the grantor still had immediate access and control over them within the United States.
Irrevocable trusts can offer better asset protection benefits within the United States. Placing assets in an irrevocable trust means that you are giving up complete control, and because you no longer have claim to the assets, the assets cannot be reached by your creditors. However, family members can be trust beneficiaries and thereby receive financial support.