Will a Washington Revocable Trust Shield My Assets from Creditors?
In estate planning, we often use revocable living trusts as a tool to help clients bypass the probate process. A trust is a legal arrangement where you transfer title to certain property to a trustee. The trustee then manages that property on behalf of the beneficiaries named in the trust document. With a revocable living trust, it is common to serve not only as the settlor–the person who creates the trust–but also as the trustee and beneficiary during your lifetime.
Assets in a revocable living trust do not pass as part of the settlor’s probate estate. So when the settlor dies, a successor trustee takes over the trust and distributes or continues administering the property as directed by the settlor in the original trust documents. This makes it easy to complete distribution of the settlor’s assets without having to go through the entire Washington probate process.
Revocable Trusts vs. Separate Business Entities
But it is critical to understand that while a revocable living trust can help you avoid probate, it is not a mechanism to shield your assets from creditors to whom you owe money. The key reason for this is that the trust is “revocable” at any point during your lifetime. In theory, you could create a revocable living trust today, transfer all of your assets into it, and then change your mind tomorrow and revoke the trust, thus transferring all of the assets back to you.
So long as you retain full control over the assets in a trust, it is still considered your property when it comes to legal matters like paying taxes or civil judgments obtained against you personally. Put simply, you cannot use a revocable living trust to “shield” assets from a creditor. It is possible to shield assets through certain types of irrevocable trusts, i.e., a trust where you completely surrender control over the property in question but you can never use this process if the creditor already exists. But a revocable living trust is ultimately a financial and estate planning tool, not a method of asset protection.
Another way to look at this is that a revocable living trust is not a distinct legal entity. If you are looking to shield your personal assets from a business creditor, for instance, you can create a Washington corporation or limited liability company. This provides you with a separate legal entity that does shield your personal assets from anyone seeking to collect on a business debt.
Contact a Spokane Estate Planning Attorney Today
If you are looking to safeguard your personal wealth as part of your estate plan, it is best to speak with an experienced Spokane asset protection lawyer who can sit down with you and explain your options. There are often legal ways to protect your family’s financial future provided there are no present creditors, including the creation of corporate entities and irrevocable trusts. But you should not attempt to do so on your own. Contact Moulton Law Offices today to schedule a consultation. We serve clients in Spokane Valley, Kennewick, and Yakima.