Estate Planning Lawyer
A living trust is any type of trust you create while you are alive rather than it taking effect once you die. If you are looking to protect the title of your home, transferring the title into a living trust will only protect it from a lawsuit if the trust type is irrevocable. Most states have laws that allow the attachment of the home by creditors if the transfer is fraudulent, as an estate planning attorney Ridgefield, CT trusts knows well.
State laws view the trust as irrevocable if the grantor gives up all of their ownership rights and control over the home and any other assets put into the trust. The grantor of an irrevocable trust are not able to change or revoke the trust after it has been created. Alternately, a revocable living trust allows the grantor to take back control over any assets placed in the trust, control the distributions to their beneficiaries, and can even revoke the entire trust. To protect your home from creditors, you are not able to have any control over the trust. If you have any control over the trust, the state will continue to view you as the homeowner, which then allows it to be attached by a creditor.
Qualified Personal Residence Trust
An irrevocable trust is viewed as an extreme asset protection strategy. Another option would be to create an irrevocable qualified personal residence trust, which would allow you to keep a tenancy interest in your house. With this type of trust, you would still transfer the title of your home but you would keep the right to live in your house for the period stated in the trust document. Your right to stay in the home is an interest that has value, but a qualified personal residence trust is an effective option to protect the ownership rights of the home from any creditors.
Protection to Beneficiaries
Your living trust will name beneficiaries who will eventually receive homeownership benefits, so it is important to consider if they should have any creditors of their own who could attach the home later on. You can prevent the house from going to a creditor by adding a spendthrift clause in your trust which states that the trustee is not able to transfer your home’s title to another other than a beneficiary. By doing this, the beneficiaries are able to have full use of the home, but if the trust is the legal owner of the home, the creditors are not able to have claim against the home.
If a creditor has obtained a legal judgment against the title of your home, you are not able to create an irrevocable living trust to protect your home from the creditors. An irrevocable living trust is only able to protect your assets in the trust from any future creditors. However, an existing creditor can still claim assets in a trust if your transfer was fraudulent. This means that it can be proven that your sole purpose of creating the trust and transferring your home’s title was to avoid the existing creditor.
Thank you to our friends and contributors at Sweeney Legal for their insight into estate planning and living trusts.