When a creditor is seeking to reach the assets of an individual and those assets have been transferred to a trust, the initial thought may be that the assets are protected. In many cases, however, this is not the case. Assets that are held in a revocable trust are generally reachable by creditors of the grantor of the trust. A revocable trust is an arrangement that is made for the management and distribution of the property of its creator. Since the grantor retains the right to revoke, modify, or otherwise control the trust during his lifetime, the revocable trust does not provide creditor protection. This is because the asset is still being used and controlled by the creator of the trust.
5 Signs That a Trust Is Revocable
In some cases, determining whether the assets held in a trust are reachable by creditors may be obvious right away. In others, it may be less clear. Fortunately, an experienced attorney can help you assess the creditor protection provided by a trust during a litigation matter. Generally, the following are five signs that indicate a trust is revocable, and therefore subject to attack by a creditor:
- The grantor, also known as the creator or settlor of the trust, is still alive and acting as trustee.
- The name of the trust includes the words “revocable” or “living.”
- The grantor continues to live in or use the assets that were transferred into the trust.
- The grantor is the initial beneficiary of the trust and receives its benefits.
- The terms of the trust state that it is subject to revocation or amendment by the grantor of the trust at any time.
Once the grantor of a trust passes away, the trust then becomes irrevocable. At that point, the trust provides more creditor protection than may have existed before his or her death. Our article, “Five Questions to Consider During a California Irrevocable Trust Lawsuit,” provides a helpful overview for trustees and beneficiaries when a creditor sues an irrevocable trust.
We hope that this article provided you with important information about the susceptibility of a trust to attack by a creditor. If so, we invite you to share it with your friends and family on Facebook!
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