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Asset protection is one of the key purposes of estate planning. A living trust is one commonly used tool to accomplish that goal. Living trusts offer many benefits beyond asset protection, including probate avoidance, easier distributions to heirs, and privacy. However, you may wonder whether a living trust can protect assets from lawsuit threats. Here’s what you need to know.
What Is a Living Trust?
A living trust is a legal document that you create during your lifetime. In the document, you transfer your assets and property to a trustee. The trustee’s responsibility is to manage the assets while you are alive. You may choose to serve as your own trustee. A successor trustee will facilitate passing the assets to named beneficiaries after you die.
Most living trusts are revocable trusts, giving you the right to amend or revoke the trust at will. Irrevocable living trusts transfer all property to a trustee and cannot be changed.
Can a Living Trust Protect Your Assets from Lawsuits?
A revocable living trust offers minimal protection of assets from creditors or lawsuits. Under Arizona law, assets in a revocable trust remain subject to claims from the creator’s creditors. Furthermore, assets in a revocable living trust remain subject to creditor claims unless otherwise exempted by state or federal law. If someone secures a verdict against you, they could go after your assets.
Alternative Strategies for Asset Protection in Arizona
Individuals and families prioritizing asset protection have other options for preserving their wealth against creditors or legal claims. Alternative asset protection strategies Arizona residents may pursue instead of using a living trust include:
- Irrevocable trusts – You can create an irrevocable living trust for assets you wish to protect from creditors or judgments. However, you cannot amend or revoke an irrevocable trust.
- Spendthrift trusts – A spendthrift trust includes provisions that expressly prevent the trust from lawsuits, bankruptcy, and creditor claims.
- Liability insurance – Individuals and families can purchase various liability insurance policies, including auto liability insurance, homeowners insurance, professional malpractice/errors and omissions insurance, and umbrella insurance.
- Limited liability companies – People who own businesses or income-generating assets (like real estate) may choose to protect those assets by establishing LLCs to house them.
Contact Our Arizona Estate Planning Attorneys Today
When you want to protect your assets through careful legal planning, an estate planning attorney from Pennington Law, PLLC can discuss the best way to shield your assets from lawsuits and creditors. Contact our firm today for an initial consultation with an experienced trust lawyer.
