Budgeting Financial Planning Estate Planning How Judgments Affect Assets in a Trust By Julie Garber Julie Garber Julie Garber is an estate planning and taxes expert with over 25 years of experience as a lawyer and trust officer. She is a vice president at BMO Harris Wealth management and a CFP. Julie has been quoted in The New York Times, the New York Post, Consumer Reports, Insurance News Net Magazine, and many other publications. learn about our editorial policies Updated on January 17, 2022 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies In This Article View All In This Article Revocable Living Trusts Irrevocable Living Trusts Testamentary Trusts Strategic Asset Protection Planning Photo: Hero Images / Getty Images Many people believe that a living trust can protect your assets, but a creditor, a judgment holder, or even your ex-spouse can force you to reach into at least one type of trust to pay off judgments and other debt obligations. Asset protection is a complicated process involving a deep analysis of your long-term financial needs and estate planning goals. You must strategically position and re-position your property in order to shield it from creditors' claims, and that begins with an understanding of what different types of living trusts can do. Revocable Living Trusts As the name suggests, a revocable living trust is one that the creator—referred to as the "grantor" or "trustmaker" in legal terms—can revoke or undo at any time. The trustmaker reserves the right to change the trust's beneficiaries and any other facet of its formation documents. They can take back property and assets that they've funded into the trust. Note The trustmaker typically acts as the trustee of this type of trust, managing it and its assets. You still personally own assets that you've titled in the name of your revocable trust, because you retain control over them. You're able to reclaim ownership of them if you see fit. You might appoint someone else to act as trustee or name a successor trustee to take over for you in the event that you should become mentally incapacitated, but you're still the legal owner of the property you've funded into it. Creditors can take assets you own if they secure a judgment against you from a court, so property funded into a revocable trust is not safe from their grasp if you should default on your repayment terms. Irrevocable Living Trusts An irrevocable living trust is much more hands-off. Just as with a revocable trust, the trustmaker would transfer their property into the trust's ownership, but then the trustmaker must step aside. They can't undo the trust. They can't change its terms after they've created it. They can't act as trustee. Someone else must be appointed to serve in that capacity, either another individual or an institution. Note An irrevocable trust moves your assets out of reach regardless of who you might owe money to. You can't take back property you've funded into this type of trust. It's no longer yours, so it's not available to your creditors under any circumstances. It's safe from estate taxes as well. It doesn't contribute to your taxable estate after your death, because you no longer own it. Testamentary Trusts A testamentary trust is created under the terms of an individual's last will and testament. It doesn't exist until the trustmaker dies. Their will would include instructions as to what property should move into the trust as part of the probate process, and the executor of their estate or their estate attorney would typically form the trust according to the decedent's wishes. Unlike revocable and irrevocable trusts, a testamentary trust is subject to probate because that's how it's formed. And because property doesn't transfer into it until the trustmaker's death, it's available to their creditors during their lifetime. Strategic Asset Protection Planning Possible asset protection planning measures include the following: Invest in your primary residence if your state offers a homestead exemption prohibiting creditors from forcing the sale of your home to satisfy your debts. Buy life insurance that accumulates a cash value. Fund retirement accounts, such as IRAs and 401ks. ERISA-qualified retirement accounts are typically safe from creditors under federal law. Purchase annuities. Set up a family limited liability company or a family limited partnership, and transfer ownership of assets into either of those entities. The Bottom Line A revocable living trust can't reliably protect your assets, although an irrevocable trust can, but forming an irrevocable trust means giving up control and ownership of your assets forever. Instead, you might consider a multi-pronged advanced estate plan that employs combinations of these strategies to achieve comprehensive asset protection planning over the long haul. NOTE: The information contained in this article isn't legal advice and it's not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to federal law. Please consult with an financial professional or an attorney for current advice. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. American Bar Association. "Wills and Revocable Trusts: One Size Doesn't Fit All." Klenk Law. "Irrevocable Trusts: Everything You Need to Know." Sutton Law Center. "Sophisticated Asset Protection Techniques." Steinbacher, Goodall & Yurchak. "Testamentary Trusts 101."