Can a Living Trust Protect Owners From Liens?
A living trust is a useful device for estate and contingency planning. Living trusts provide a set of instructions that describe how the grantor -- creator of the trust -- wants his assets managed and distributed. The trust terms function if the grantor dies or becomes sick or injured and cannot physically make his desires known. Living trusts do not protect the owners from lawful creditor liens.
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Living Trusts
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Like other trusts, living trusts have three actors: the grantor, the trustee and the beneficiary. The grantor creates the trust, the trustee oversees its administration and the beneficiary reaps the benefits from the trust assets. In a living trust, the grantor typically names himself as both the initial trustee and beneficiary of the trust and thereby retains possession and control over his assets placed into the trust. The grantor must create a declaration of trust, a legal document, and then take steps to transfer the title and ownership of his assets in the name of the trust.
Asset Protection
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Living trusts do not provide asset protection from creditors. If the grantor owes money to a creditor, the creditor can take necessary steps to reclaim what he is owed, including seeking liens on the assets held in a living trust. Creditors may do this because the grantor never fully relinquished control or possession over his assets. The living trust, by its nature, allows the grantor to continue using his assets as if the trust did not exist. If the grantor becomes disabled or dies, successor trustees and beneficiaries spring into effect and comply with terms of the trust.
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Death of the Grantor
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Irrevocable trusts may offer some asset protection, but they are complicated to create during a person's lifetime and the protection is not absolute. When a grantor of a living trust dies, the trust becomes irrevocable. This does not provide much asset protection, however. According to the Probate Court of Cuyahoga County, Ohio, creditors may still be able to reach the decedent's assets to satisfy lawful debts.
Probate Considerations
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People often praise living trusts as a way to avoid probate, a process that is sometimes lengthy and expensive. Although a trust avoids probate, assets subject to creditor claims may find more protection from those claims in the probate process. During probate, creditors must make valid claims within a certain period of time -- often, six months after the date of death. If the creditor fails to make the claim in the allotted time, he is forever barred from doing so in the future.
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