In times when people may be suffering under the weight of business or personal debts, Ohio residents may fear a judge can award any of their personal sources of wealth to a creditor, even the assets placed in a living trust. However, there are circumstances that keep assets safe within a trust, even from creditors. It all depends on which type of living trust an individual transfers assets into.
A report by FEDweek describes how living trusts work. The two main types of living trusts are revocable and irrevocable trusts. With a revocable trust, an individual maintains control over the assets. Conversely, in setting up a irrevocable trust, a person surrenders assets over to a trustee. Still, while someone can retain greater control over assets in a revocable trust, the downside is that the trustor cannot enjoy tax benefits, plus the assets are still subject to creditor claims.
However, according to a piece in the Straits Times, an irrevocable trust can protect assets from creditors. Since a person no longer owns the assets in the trust, a creditor has a much harder time laying any claim to them. For example, the article recounts an instance where a woman established a living trust that shielded her residuary estate from creditors seeking to claim her husband’s assets after his business went bankrupt. Additionally, a person may also set up a living trust in the name of an offspring. In the eventuality that a person gets divorced, the assets placed in the trust will not be subject to any judgments from the divorce proceedings.
While someone may lose a lot of control over assets placed in an irrevocable trust, the tradeoff is that the person’s assets are better protected from creditors seeking to collect on the trustor’s personal or professional debts. The security of irrevocable trusts also allow for protections against judgments resulting from divorce cases and other forms of asset confiscation.