What protection is available with a revocable living trust?

A revocable living trust is a vehicle that is very helpful in avoiding probate. Probate is the process in which the court oversees the distribution of property that belongs to a deceased person at the time of death, after all the deceased’s debts and taxes have been paid. During your lifetime, you can transfer ownership of your assets to a revocable trust so that the assets are owned by the trust at the time of your death, and therefore not subject to probate.

What is a Revocable Living Trust?

A revocable trust is one that you can revoke, which means you can take the property back or change the terms of the trust as long as you are alive and competent to make such decisions. Because you retain control of the trust, your creditors can take those assets during your lifetime if you owe them money, even though you have transferred ownership of the assets to the trust. However, the trust does make it more difficult for creditors to access these assets. The creditor has to petition a court for a charging order before the creditor can get to the assets held in the trust.

When Does a Revocable Trust Become Irrevocable?

In most instances, a revocable trust becomes irrevocable upon the death of the grantor. This means that the assets in the trust can no longer be taken back, and they have to be distributed to the beneficiaries of the trust as the trust document directs. While creditors of the deceased can try and collect from the trust’s assets, once the trust is irrevocable, the trust beneficiaries are usually not able to use the assets of the trust as collateral for their debts, so their creditors can’t get to the assets of the trust.

While the assets are held in the trust, the beneficiaries do not have control over the property, and any distributions are subject to the trustee's discretion. Creditors cannot force a trustee to make a distribution to the trust beneficiaries, thus the assets held in a trust can remain outside the reach of the beneficiaries' creditors as long as they are held by the trust. Once assets are distributed to the beneficiaries, creditors can attach them as they can any other property owned by the beneficiaries.