Does a Revocable Living Trust Offer Asset Protection?
A revocable living trust can be an effective, efficient estate planning tool. With that being said, revocable living trusts do not offer asset protection. You will generally need to set up another type of trust (an irrevocable trust) if your goal is to protect your assets. Here, our New Jersey estate planning lawyer explains the key things to know about trusts and asset protection.
How a Revocable Living Trust Works in New Jersey
A revocable living trust allows the grantor to place assets into a trust while retaining full control. The grantor typically serves as trustee and beneficiary during life. They can amend, revoke, or terminate the trust at any time. From a legal standpoint, assets held in a revocable trust remain fully reachable by the grantor. The trust does not create a separate ownership interest that limits access or control. In other words, there is no true asset protection.
Why Revocable Trusts Do Not Provide Asset Protection
Asset protection requires separation between the person and the property. A revocable living trust does not create that separation. Because the grantor retains the right to revoke the trust and reclaim all assets, creditors can step into the grantor’s shoes. In New Jersey, creditors may pursue assets held in a revocable trust to satisfy judgments, liens, or claims.
Irrevocable Trusts and Asset Protection
True asset protection generally requires an irrevocable trust. Once assets transfer into an irrevocable trust, the grantor gives up control and beneficial ownership. That loss of control is what creates protection. Creditors cannot reach assets the grantor no longer owns, provided the transfer complies with fraudulent transfer laws. In New Jersey, irrevocable trusts often play a role in Medicaid planning, long-term care planning, and high-liability professions.
In other words, an irrevocable trust can be a very powerful tool for asset protection. Though, for full protection, it needs to be set up in a timely manner. That is an especially big issue for long-term care planning. New Jersey has a five year Medicaid lookback for transfers to irrevocable trusts. An experienced estate planning attorney can assess whether a revocable trust meets your goals or whether irrevocable strategies better protect your financial future.
The Bottom Line: For probate avoidance and administrative efficiency, a revocable living trust can work very well. Upon death, assets held in the trust pass according to its terms without going through the New Jersey probate process. However, that control and flexibility do come at a cost. It is not the right tool for asset protection.
Speak to Our New Jersey Trust Lawyer Today
At Poulos LoPiccolo PC, our New Jersey estate planning attorney has extensive experience with revocable living trusts. If you have any questions or concerns about asset protection and trusts, please do not hesitate to contact us today for a completely confidential initial consultation. We help people and families with trusts in Monmouth County and throughout the region in New Jersey.
