As anyone who has lost a home or other assets to a judgment creditor can tell you, it can pay to have an asset protection plan.
If you’re ever sued by a creditor or anyone else, and the person who sues you wins a money judgment in that lawsuit, then they become your “judgment creditor”. A judgment creditor has the right to take your property in order to collect the judgment they’ve received against you.
Asset protection planning is the process of repositioning your property so that it’s no longer within the reach of judgment creditors. This involves transferring property out of your name, and sometimes establishing a trust to hold your property.
Unfortunately, transferring your property into a Revocable Living Trust is not enough to protect that property from judgment creditors. This is because, when you have a Revocable Living Trust, you keep the right to control the trust. You can change the terms of the trust, transfer property into and out of the trust, even cancel the entire trust if you want to. Because you retain control over the property in the trust, it’s considered “yours” for asset protection purposes.
If you think you might need an asset protection plan, you should meet with an estate planning attorney. He or she can help determine the best options for you. And don’t wait until the last minute – when you transfer property after a lawsuit has been filed, or even when you know one is on the horizon – the transfer can be declared invalid.