How Can a Trust Protect My Estate From Creditors?

 Posted on September 11, 2024 in Estate Planning

Estate planning allows the owner of an estate to distribute it to beneficiaries after passing away. However, one of the common obstacles estate owners face is having to protect those assets from being seized by creditors. Many debts are not forgiven upon a person’s death, so creditors often have a right to settle any outstanding debts from a debtor’s assets before they are distributed to his or her heirs.

One of the ways to protect an estate from creditors is to put it in a trust. While there are several types of trusts, this article will discuss those that can help safeguard property from being snatched up by banks and other lenders. To know which type of trust is right for you, consult an experienced Illinois estate planning attorney.

What Is a Trust?

A trust is a legal entity that assumes ownership of an asset for a certain purpose. When an estate owner transfers property to a trust, the trust becomes the owner of the property.

There are three parties involved in the entity:

• The person who sets up the trust is called the grantor.
• The grantor chooses someone to manage the trust, called the trustee.
• The person who benefits from the trust is called the beneficiary.

Depending on how it is structured, a trust allows an estate owner to:

• Maintain a level of privacy by keeping his or her name off the property title
• Keep the assets from going through probate, a grueling legal process in which the court distributes an estate after the estate owner dies
• Take advantage of tax exemptions
• Protect the estate from creditors

Here are some types of trusts that can keep assets safe from creditors.

Irrevocable Trusts

Most trusts fall into two categories: revocable and irrevocable. A revocable trust means the entity can be changed or revoked entirely. An irrevocable trust means the grantor cannot make changes to the trust or cancel it except in certain circumstances. This means that a court cannot order the grantor to amend the trust to pay a creditor, because the grantor does not have the power to do so. The assets belong to the trust.

Spendthrift Trusts

A spendthrift trust contains a clause that prevents the beneficiary from directly accessing the property or funds. Instead, the trustee maintains full control of the assets and disburses them to the beneficiary as appropriate. This is commonly used in cases where the beneficiary has poor financial management skills. Creditors cannot access assets in a spendthrift trust because they are owned by the entity and under the control of the trustee.

Contact a Schaumburg, IL Estate Planning Lawyer

Trusts are a great way to ensure that your estate is distributed to your heirs with minimal losses from tax requirements or creditors. Hire a DuPage County, IL estate planning attorney to create a trust that will achieve your objectives. At Anderson Attorneys, P.C., we are ready to use our extensive knowledge and experience to structure a trust that matches your exact needs. Schedule a free consultation with a skilled attorney by calling 847-850-8899 today.