Do revocable living trusts provide asset protection? In two words: “Not usually.”
There are a great number of people who seem to think that revocable living trusts provide them some sort of asset protection. This couldn’t be further from the truth. What is the reason for that state of affairs? The main reason a revocable living trust doesn’t provide asset protection is because it is a self-settled trust, meaning you still control the assets in the trust. If you still have the control over any assets in the trust and have creditors, they may make claims against the trust while you are alive or after you have died.
Having said that, there are some exceptions where this type of a living trust may provide asset protection. That would only be applicable to trusts formed under the Domestic Asset Protection Trust which is enacted in three states, Nevada being one of them. In Nevada they are referred to as Nevada Trusts or self-settled spendthrift trusts. Basically what the Nevada Trust does is allows you to form a trust for your own benefit and then protect it from creditors.
Now this sounds good on the surface, but you need to look a little deeper and consult with an expert attorney about these Nevada Trusts. One thing you should be aware of if you live in Nevada and choose to set up such a trust is that these laws are very new and haven’t been tested. This means that ultimately they have the potential to be very risky. It’s a given that there would be many questions if a Trust trustee is sued in another state about a creditor’s ability to attach assets in Nevada Trusts. If this does happen, the law may be overturned. This is one of the main reasons you would want to talk this over with a highly qualified Las Vegas attorney.
Just to clear up some possible confusion over how a Nevada trustee could be sued in another state; this may happen if they live outside of Nevada. That would mean they may be sued in whatever state they are in. It may also be the case that assets are in another state, meaning a lawsuit could take place in that state. If a suit was filed in another state, the courts would be hard pressed to apply the Trust laws of the state in which it was created. For example, if the trust was formed in Nevada but the assets are in Florida and a suit is filed there, Florida law may apply and the assets won’t be protected.
This situation has the potential to get even more complicated if a lawsuit is in Federal court and the creditor is in a different state. And, there’s more, the Asset Protection Trust is specifically designed to delay creditors. This brings amendments to the Bankruptcy Code into the picture which invalidates self-settled trusts created within ten years of filing for bankruptcy.
There are a variety of permutations and combinations for the creation of trusts that do work, but you really need to speak to an attorney to know which ones would work in your case. You may need an irrevocable living trust, an offshore trust, or put your assets into a corporation. The only way to know what option to choose is to discuss this with a lawyer who understands what would work best in your circumstances.
Bradley J. Hofland is with Las Vegas Divorce law firm, Hofland, Beasley & Galliher. The law firm focuses on Las Vegas family law, custody, and Las Vegas personal injury. To learn more about
Las Vegas divorce, Las Vegas personal injury, Las Vegas divorce lawyer, Las Vegas family law, Las Vegas family law attorneys, Las Vegas personal injury lawyer, visit Hoflandlaw.com.