A trust is revocable if it contains language that allows you to
change your mind and terminate or modify it. In California, the
Probate Code specifically states that all trusts are revocable,
unless specifically stated otherwise. A trust is called a "living" trust because it is set up by you
while you are living. If you set up a trust through your will,
it's called a "testamentary" trust since it is created through
your last will and testament.
The right to revoke your trust means you can remove any asset from the trust title at any time you choose. Since you have the right to revoke the trust, you are treated as the legal owner of the trust assets for purposes of income tax law or creditor collection law.
So, the general, basic answer to the question, "Will my revocable living trust protect my assets from my creditors?" is no. Since you can remove any asset at any time, your creditor can force you to remove the asset. Now there are types of "irrevocable" trusts that can be used for protection of "spendthrifts."
(That's the fancy term for someone who can't manage their own
property due to lack of sophistication, gullibility, or other
problems). I know a family where one son spends money as soon as he gets it. He gives it to friends, spends it on new toys, whatever. He just doesn't have a healthy concept of money and can't keep it. He is a classic "spendthrift."
In his parents' case, what they have done in their living trust is said, in effect, after they're both dead, the spendthrift son's share of the estate will be held in an irrevocable trust for his benefit. He is to be given a monthly draw on the trust until he dies or until the money runs out. In that case, the money in the "spendthrift trust" is sheltered from the son's creditors since he does not, nor did he ever, own the assets held inside the trust.
Sure, the creditors can get his monthly draw once he gets it, but the main trust is sheltered for his benefit. That is a classic and perfectly legal way of sheltering assets from the creditors of a "spendthrift" using a living trust (it can also be done using a testamentary trust). Good luck and until next time,
P.S. Feel free to forward this on to any friends.
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