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Can a trust protect assets from creditors during your lifetime?

On Behalf of | Oct 15, 2024 | Estate Planning

Creating a trust can be a powerful tool for protecting assets from creditors during your lifetime. Different types of trusts offer varying levels of protection. 

Understanding how trusts work can help you make the right choices for your financial future.

Types of trusts for asset protection

An irrevocable trust is often used to protect assets from creditors. Once you place assets in an irrevocable trust, they are no longer owned by the person who created the trust, known as the grantor. Since the grantor no longer owns these assets, creditors cannot usually access them. However, setting up an irrevocable trust means giving up control over the assets, as changes cannot be easily made without the beneficiaries’ consent.

Spendthrift provisions

A spendthrift provision is a feature that can be added to a trust to prevent creditors from accessing the trust’s assets. This type of provision restricts the beneficiary’s ability to transfer their interest in the trust, which means that creditors cannot claim the assets directly. In Maryland, spendthrift trusts are often used to protect assets from both the beneficiary’s and grantor’s creditors, providing an extra layer of security.

Limitations and considerations

It is important to note that not all trusts offer protection from creditors. For example, a revocable trust, which allows the grantor to maintain control over the assets, does not provide the same level of protection. Creditors can still claim assets held in a revocable trust. Maryland law also has certain limitations, such as not allowing asset protection for trusts created to defraud creditors.

Building financial security

Using a trust can be an effective way to protect assets from creditors and ensure that your wealth is preserved for future generations. By choosing the right type of trust, individuals in Maryland can safeguard their assets and achieve greater financial security during their lifetime.

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