Sued and Stressed: Can an Irrevocable Trust Shield Your Wealth?

I’m Getting Sued and I’m Worried About My Assets – Will an Irrevocable Trust Protect Me?

By Attorney Paul Hanks Ironclad Living Trusts in California

What can you do if you are being hounded by creditors and you don’t want to file for bankruptcy relief? As you see your creditors closing in, will an irrevocable trust protect your assets? 

One key feature of an irrevocable trust is liability protection, but as with many things in life timing is everything. Many clients have approached this estate planning law firm over the years seeking an irrevocable trust as a device to insulate themselves from delinquent debts. Is an irrevocable trust the answer to your debt ridden ills?

Many people are surprised to hear that the answer is no, and that an irrevocable trust is not the guarantee of liability protection they had hoped for. There are many scenarios where an individual can still be sued and their assets jeopardized even where an irrevocable trust is in place. 

A real life example would best illustrate a common situation where an irrevocable trust fails to protect a debtor’s assets. Let’s assume that the debtor is burdened with delinquent credit card debt. If the debtor creates an irrevocable trust as a vehicle to remove assets from the reach of creditors, a court can invalidate the transfer. Worse yet the court can impose additional penalties against the debtor. The end result is that your assets are still available to creditors to satisfy your unpaid debts. 

Irrevocable trusts can serve legitimate asset protection purposes but should never be used to obstruct lawful creditor actions. Irrevocable trusts are a wealth management strategy designed as merely one means to preserve and protect a portfolio of assets. Timing is very important with regard to an effective and powerful irrevocable trust. If you own significant assets and wish to protect your wealth from future unknown liabilities, then a properly drafted irrevocable trust will protect any assets transferred into that irrevocable trust. 

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