Does your Revocable Living Trust protect you against lawsuits or creditor claims?
As an estate planning attorney practicing in Idaho, I frequently encounter clients who have misconceptions about how trusts protect their assets. One of the most common questions I hear is whether a revocable living trust will shield a client’s property from lawsuits and creditors. The answer might surprise you — and it's crucial to understand the limitations of different trust structures when planning your estate in Idaho.
Let's start with a fundamental truth: a revocable living trust, despite its many benefits, does not provide protection against lawsuits or creditor claims. Why? The answer lies in the "revocable" nature of these trusts. Under Idaho law, when you maintain the power to modify or revoke your trust and retain control over your assets held in a trust, those assets remain vulnerable to legal judgments against you. A judge can order you to access the assets in your trust to pay off judgements against you, unpaid taxes, or creditors to whom you owe money.
What Revocable Living Trusts do well
While they may not provide asset protection, revocable living trusts serve several valuable purposes for Idaho residents:
1. Probate Avoidance: Idaho's probate process can be time-consuming and costly. A properly structured revocable living trust helps your estate bypass this process entirely.
2. Incapacity Planning: Should you become unable to manage your affairs, your designated successor trustee can step in seamlessly to manage trust assets without court intervention.
3. Privacy Preservation: Unlike wills, which become public record upon death, trusts maintain your family's privacy regarding asset distribution, the value of your estate, and who is and is not included in your planning.
4. Flexible Estate Management: You maintain complete control during your lifetime while establishing clear instructions for asset distribution after your passing.
For Idahoans seeking genuine asset protection, here are some alternatives to discuss with your estate planning attorney:
Irrevocable Trusts
Unlike their revocable counterparts, properly structured irrevocable trusts can provide significant asset protection because you relinquish control of the assets. However, this decision is permanent and comes with lots of down sides (which is why irrevocable trusts are used so infrequently). Careful weighing of pros and cons and the guidance of a very experienced estate planner is essential if this approach is being considered.
Limited Liability Companies (LLCs)
Idaho's LLC laws offer robust protection for business owners and real estate investors. When properly structured and maintained, an LLC can shield personal assets from business-related liabilities. Plus, Idaho law allows for the simultaneous use of revocable living trusts (to avoid probate) with LLCs (to protect against liability).
Insurance Coverage
Comprehensive insurance policies, including umbrella coverage, often provide the first line of defense against potential lawsuits and should be part of any asset protection strategy.
The key to effective estate planning in Idaho lies in understanding that no single tool provides complete protection. Instead, consider implementing a multi-layered approach that might include:
• A revocable living trust for probate avoidance and incapacity planning
• An irrevocable trust for certain assets — if appropriate for the circumstances
• Business entities like LLCs for investment properties or business interests
• Adequate insurance coverage
• Regular review and updates of all planning documents
Idaho law offers various tools for protecting your assets, but their effectiveness depends on proper structuring and timing. Consult with an experienced Idaho estate planning attorney for confidence that your plan aligns with current state laws and meets your specific needs.
My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.
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Robert J. Green is an Elder Law, Trust, Estate, Probate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Robert at 208-765-6555, Robert@KootenaiLaw.com, or visit www.KootenaiLaw.com.
This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.