How Does a Trust Help Protect Your Assets?

What Is a Trust? How Does It Protect You From Creditors?

When you’ve worked hard to build a significant net worth, you want to be careful to take the right steps to protect your assets. One of the most effective ways to do that is through the creation and use of a trust. What is a trust? How does it protect your estate from creditors and others?

What Is a Trust?

A trust is a legal document that creates a separate legal entity that has the power to hold and manage property, typically including the right to buy and sell trust assets. The trust commonly includes:

• A trustor or grantor—the person(s) who place property into the trust
• Trustees—Persons or entities who have been granted authority by the trust document to manage the property in the trust
• Beneficiaries—Persons for whose benefit the trust assets are managed

How Does a Trust Work?

Once a trust document is created and executed, the trust has the legal right and authority to hold property. Most types of assets can be placed in a trust—real property, investments, bank accounts, business assets, and personal property can all be transferred to a trust. As a general rule, retirement assets cannot be placed in a trust.

Access to the assets in the trust is governed by the terms of the trust document. One of the responsibilities of the trustee is to ensure that the use of the assets complies with the terms of the trust.

How Does a Trust Protect Assets From Creditors?

When you transfer property to a trust, you no longer own it, the trust does. Accordingly, if a creditor has a personal judgment against you, they won’t be able to access the property in the trust to satisfy the judgment.

A caveat, though: a trust can be revocable or irrevocable. If it’s revocable, that means the grantor can revoke the trust at any time and retake ownership of the assets. A court may therefore find that the assets in the trust should be treated like the property of the grantor and allow creditors to access them to satisfy a judgment. Assets in an irrevocable trust are more likely to be protected from creditors.

Contact MCIS Law

At MCIS Law, PLLC, in Stafford, we provide comprehensive counsel to businesses and business owners throughout southeast Texas, handling all matters related to business formation. For a confidential consultation with an experienced and knowledgeable lawyer, email us or call our office at (346) 297-0121. We accept all major credit cards.