It depends. Generally, for basic estate planning purposes, people execute a revocable living trust. This trust provides the many benefits that I have discussed in prior posts including probate avoidance, privacy, planning for incapacity, and estate tax avoidance. However, a revocable living trust generally will not provide protection from your own creditors.
It is a common misconception that by transferring your assets to a trust you will keep them out of reach of creditors. However, because grantors using revocable trusts have full powers to revoke, amend, and otherwise exercise dominion and control over the assets, creditors may still get to the assets of the trust. Although, a beneficiaries creditors may not get to the assets of the trust if a proper “spendthrift provision” governs the trust.
In order to truly protect assets one must generally enter into an irrevocable arrangement. The downside is that you generally lose control of your assets in an irrevocable trust. Unfortunately, we can not have our cake and eat it too. However, for some people, the irrevocable trust may make some sense. Some advanced planning techniques may be appropriate to those who have increased liability risks. One potential vehicle unique to our neck of the woods is the Nevada Self Settled Spendthrift Trust. This vehicle is irrevocable, but provides some amount of control. Stay tuned and I will write a new post in the next few days on this trust.
