What is a living a trust? | What is an asset protection ? | Are a person’s assets placed in their own Trust protected from their creditors?
Many people believe that having their assets in a Trust will protect the assets from creditors. They erroneously believe that even if they are sued, their assets are protected . Most, if not all states, have laws against Self Directed Spendthrift Trust (“SDST”). A SDST is a trust where a person places his or her own assets in a Trust. The law prohibits SDST. Placing your own assets into your own Trust is a SDST and consequently will not protect your assets. The basic premise behind this rule is the law does not support an individual placing his own assets into a Trust to avoid his creditors.
The simple rule is that in order for a Spendthrift Trust to be valid it must be created by a 3rd party. Without a doubt a valid Spendthrift Trust will protect your assets placed into a Trust. An example of the typical Spendthrift Trust is when a parent places assets into a trust for their children.
So, what is a trust? The most common Trust is a Revocable Trust. In a typical situation an individual places their property (usually a residence) into the Trust. This will allow for the assets in the Trust to be passed on to the heirs of the person who created the Trust without a court assisted process called –Probate. The benefit of placing your own property into a Trust is to allow your heirs to receive your assets at your death. Placing your own assets in your Trust will not protect the assets from creditors, because it becomes a SDST. Even though a SDST is an ineffective way to protect your assets, there are other avenues of protecting your assets from creditors. It takes a bit of planning but is entirely possible even without having to spend a fortune in legal fees.