What is a Living Trust

What is a living trust? Living trusts are revocable trusts that are often an important element of an asset protection plan.

Advantages of a Living Trust

Living trusts are an excellent way to own LLC membership interests, FLP partnership interests, and other interests in entities that will provide protection.

By owning these legal entities with your living trust instead of your own name, you would be able to save expensive estate taxes and probate fees when you die. You would thus get the protection of your assets while you are alive, avoid the hidden dangers of joint tenancy, and save your family estate taxes and probate fees when you are no longer around.

Disadvantages of Living Trusts

The main disadvantage of living trusts is that they do not actually offer asset protection. This is a mistaken conception of many Americans. Since living trusts are highly flexible and revocable, they are vulnerable to creditors.

Creditors can essentially force the grantor to unwind a revocable trust and liquidate the funds to award damages. This is typically achieved by petitioning the court to ‘step into the shoes’ of the grantor and direct the funds of the trust back to the debtor. Trust assets will thus become fully available to the creditors.

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