Although wills are the most common way to plan. who will receive property after the owner’s death, living trusts are a popular alternative to wills for estate planning. A living trust, which is also sometimes called a grantor trust or a revocable trust, is a trust you set up during your lifetime in which the person setting up the trust maintains full control over the property by naming himself as both the trustee and the beneficiary of the trust. During his lifetime the grantor will treat the property as his own and upon his death the property in the trust will be distributed according to the terms of the trust. The main reason living trusts are popular is because they enable the decedent’s estate to avoid putting the property through probate after the grantor’s death.
People sometimes ask whether putting property in a living trust will stop your creditors from taking it. Their feeling is that since the assets are no longer in their name someone trying to collect debts from the grantor should not be allowed to garnish the property. As a general rule this assumption is false. Since the grantor still has full control of the property a creditor who obtains a judgment against the grantor can attach his assets in the trust.
I refer to this as a “general rule,” because the laws on trusts are highly technical, and there are ways to set up trusts that will protect the owner’s property from creditors. The common living trusts though that are heavily marketed by lawyers and financial planners do not fall into this category. Therefore the best advise to someone, who is interested in using a trust for asset protection, is to consult an estate planning attorney, who can advise them of exactly what limitations on their control of the property they would have to accept to make it safe from creditor claims.
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