Can a Living Trust Protect a Home From a Lawsuit?
When accidents can happen easily and lawsuits are common, it is natural for you to want to protect your most basic assets from loss. Your home is one of your most essential assets.
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Types
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There are two main types of trusts: revocable and irrevocable. Revocable means that you can take the assets back from the trust at any time during your life. Irrevocable means that when you give assets to the trust they are gone forever. Living trusts are revocable. You can change them at any time during your life by adding assets, taking assets out, disposing of them or ending the trust. A living trust is never final during your lifetime. The trusts are called living trusts because you set them up and transfer the property to them while you are still living. They are also called inter vivos trusts.
Function
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The purpose of a living trust is to avoid probate fees on your estate by making sure that your property does not have to go through probate. You do this by transferring your assets to your living trust while you are still alive. When you die the property belongs to your trust and not to you, so it does not become part of your estate and does not have to go through probate, be reviewed by a court, or be subject to fees.
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Effects
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Because living trusts are revocable trusts, you still own the right to take the assets back. If there is a judgment against you, your creditors can use that right to take any property back from the living trust that creditors are allowed to collect under the laws of your state.
Considerations
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Your state may have a homestead exemption that will prevent a creditor from taking your home or some portion of your equity in your home. You can check your state statutes online or in your local law library to find out much of an exemption your state allows you.
Prevention
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There are ways to protect your home from a lawsuit, but a living trust is not one of them. The only form of trust that can protect your property is an irrevocable trust. Once you transfer your property to that trust you have no right to take it back, so someone who gets a judgment against you will not have any right to the property either.
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