As you now know, a revocable trust cannot give you asset protection. For
creditor protection, you need an irrevocable trust. But the obvious disadvantage
with an irrevocable trust is that you can’t revoke the trust and
reclaim your assets. You essentially lose control over the trust assets.
Irrevocable trusts protect assets for the same reason that revocable trusts
cannot. Your creditors can unwind the revocable living trust, but not
the irrevocable trust. Therefore, irrevocable trust assets are generally
safer from creditors and lawsuits. However, the irrevocable trust carries
this heavy price of lost control over your assets. Most people consider
that loss in control too steep of a price for protection. But you might
use an irrevocable trust when you’d inevitably gift the assets to
the beneficiaries anyway and you don’t foresee needing the assets
for yourself. Your ‘price’ then is not particularly heavy.
You don’t personally need the assets, and the trust accomplishes
what you want – to distribute the assets to your beneficiaries (usually
your children) at some future time. But keep four cautions in mind: 1)
you can’t reserve any power to revoke, rescind or amend the trust,
or retain any direct or indirect rights to reclaim property transferred
to the trust. In sum, there can be ‘no strings attached’;
2) you can’t dictate how the trust property will be managed or invested;
3) you can’t be the trustee, nor can you appoint your spouse, relative
or close personal friend to be the trustee. Your trustee must be arms-length.
4) In most states you cannot be the beneficiary as this creates a self-settled trust.