Can a Trust Help Protect Assets from Creditors? | Wilson & Wilson

Asset protection is a common concern for individuals and families looking to safeguard their financial security and preserve their legacy for future generations. Unexpected lawsuits, economic uncertainties or unforeseen life events can pose significant risks to your wealth. At Wilson & Wilson, we help clients preserve their assets through personalized, strategic planning. Placing all of your assets into a trust will not protect them from creditors; however, certain irrevocable trusts may provide benefits. It’s important to address your estate planning options with an attorney. 

Understanding Trusts and Their Role in Asset Protection

A trust is a legal arrangement in which one party, the grantor, transfers assets to a trustee, who manages those assets for the benefit of the trust’s beneficiaries. While every trust serves a specific purpose, not all trusts offer protection from creditors. For instance, revocable trusts, often used for estate planning, do not shield assets from creditors because the grantor retains control over the assets during their lifetime.

However, irrevocable trusts, designed with specific asset protection goals, can potentially serve as a shield. When assets are placed into an irrevocable trust, the grantor relinquishes control and ownership. Because the grantor no longer owns those assets, creditors are, in some cases, unable to reach them. Such is only valid when the courts do not believe you are attempting to defraud your creditors. 

A Closer Look at Irrevocable Trusts

Irrevocable trusts are particularly effective in asset protection due to their structural independence from the grantor. For instance, Medicaid Asset Protection Trusts (MAPTs) are designed specifically to shield assets when planning for long-term care costs. MAPTs allow individuals to qualify for government assistance without exhausting their life savings. These trusts must be established well in advance due to Medicaid’s look-back period, which examines asset transfers for eligibility purposes.

Spendthrift provisions within a trust prevent beneficiaries from transferring or pledging their trust interest to creditors. This is particularly useful for protecting assets from the beneficiaries’ creditors while maintaining financial support for their long-term needs.

Limitations and Considerations

While trusts can be highly effective in protecting assets, they come with legal and practical considerations. For instance:

Timely Planning. The timing of trust creation is crucial. Transferring assets into a trust at the last minute, when creditors are already pursuing claims, may be considered a fraudulent transfer and deemed invalid. Proactive planning is essential.
Jurisdictional Rules. The rules governing trusts vary by state, so it’s important to work with legal professionals well-versed in the relevant laws to ensure compliance and enforceability.
Irrevocable Nature. Once an irrevocable trust is established, the grantor’s ability to modify or dissolve the trust is severely limited. This is a trade-off for the robust asset protection such trusts provide.

Why Consult Wilson & Wilson for Asset Protection?

It’s important to review your situation with a knowledgeable attorney. Wilson & Wilson can assist individuals in exploring estate planning options, including trusts, to better support their loved ones down the road. We bring years of experience and a deep commitment to safeguarding our clients’ financial futures. Our attorneys carefully evaluate your situation and design tailored solutions, including the use of irrevocable trusts, to meet your needs.

Secure Peace of Mind Today

Irrevocable trusts are a versatile and effective tool for asset protection, but they require careful planning, precise execution and compliance with complex legal frameworks. Whether you’re concerned about safeguarding your assets, preparing for long-term care or preserving your family’s legacy, Wilson & Wilson is here to help. Contact us today to schedule a consultation and take the first step in securing your financial future.