CALL NOW!
FREE PHONE/VIRTUAL CONSULTATION

Does a Trust Protect Assets in Bankruptcy?

bank vaultTrusts and Bankruptcy

Trusts are popular in the asset protection industry and many promote them as a way to remove your name from your assets and prevent creditors from gaining access to them. But do they really change the rights afforded to creditors?

Not as much as you might think.

First, it’s important to understand how trusts work.

A trust is created while you are alive and provides benefits during your lifetime and to your loved ones once you are gone. You are free to unwind the trust (if it’s revocable) or extract whatever assets you choose from the trust at any time.

The most significant benefit of a trust is that it enables loved ones to avoid the probate process. The trust determines who gets what assets and makes the settling of your estate simpler once you’re gone.

Putting assets in the trust makes them appear to no longer be yours personally but instead a part of the trust. It makes sense that many people would assume this provides protection from creditors and means debt collectors won’t be able to reach those “trust-owned” assets to collect on a debt.

But the truth is the trust changes nothing in terms of your exposure to creditors. If the trust is revocable and you have the power to revoke it in any way, the assets in the trust are subject to creditor’s claims. When you complete your bankruptcy paperwork you’ll need to list the assets in the trust just as you would any other asset.

What about an Irrevocable Trust?

Irrevocable trusts are different than revocable trusts, but not as much as you might want them to when it comes to protecting assets from creditors.

As the name implies, in an irrevocable trust you do not have the power to move assets out of the trust at will. You have less flexibility, but you gain additional protection.

But does this protection mean you can circumvent the bankruptcy process and avoid having your assets taken by a creditor?

Not necessarily.

One of the reasons for this is timing. If you put assets into or take assets out of a trust too close to filing for bankruptcy it can be viewed as a fraudulent transfer.

Laws protect creditors who have claims at the time a trust is funded and those filing for bankruptcy cannot defeat creditor claims by giving their property to a trust. If you receive nothing in return for the transfer of an asset into a trust, it is considered a fraudulent transfer.

Laws in your state and federal bankruptcy laws include restrictions on how long a fraudulent transfer can be challenged by creditors. State laws and the rules of the trust will also govern the right of creditors to be paid from an irrevocable trust.

To learn more about the differences between revocable and irrevocable trusts, check out this information from Legal Zoom.

The important thing to remember is that there are no shortcuts and only limited ways to protect assets from creditors. The best thing you can do is work with an experienced bankruptcy attorney who understands exemptions and knows how to manage assets and risks when filing for bankruptcy. Trying to manipulate or outsmart the system will likely do nothing more than getting you in trouble. This doesn’t mean that trusts aren’t a valuable asset planning tool. It just means you shouldn’t try to use them to trick creditors.

If you’d like to know more about bankruptcy or want to speak to someone about the details of your specific situation, contact the Law Office of Robert M. Geller at (813) 254-5696 or schedule a free bankruptcy consultation at one of our convenient office locations..

Archive

Tampa Bankruptcy Law Blog

How to Avoid Being a Victim of Scam Calls for Student Loans

Scam Calls for Student Loans Student loans are one of the biggest burdens faced by college attendees. Even students who...
Read More

Can Medical Bills Be Included in a Bankruptcy? Here’s What You Need to Know

Can medical bills be included in a bankruptcy? Medical problems are stressful enough without facing a significant debt burden after...
Read More

I’m Unemployed. Can I Still File for Bankruptcy?

Unemployed Bankruptcy Being in debt is bad enough, but if you’ve lost your job recently or accumulated debt because of...
Read More

How Will Filing for Bankruptcy Affect My Credit?

Will Bankruptcy Affect My Credit? Not paying your bills affects your credit negatively. And yet problems with credit are one...
Read More

Behind or In Default on Your Student Loan? Here’s What You Should Know

Student Loan Default If you’ve fallen behind on student loan payments or your student loans are in default, you aren’t...
Read More

Will Bankrutcy Affect My Job? Learn How Filing Affects You in the Workplace

Will Bankruptcy Affect My Job? Filing for bankruptcy raises many considerations. One of the most important is whether or not...
Read More

Can Bankruptcy Help Me If I’m Behind on Child Support?

Bankruptcy and Child Support Bankruptcy can help you with a lot of things. It can help you stop calls from...
Read More

Can You File for Bankruptcy When You’re Unemployed?

Bankruptcy and Unemployment Being in debt is bad enough, but if you’ve lost your job recently or accumulated debt because...
Read More

Bankruptcy and Eviction History

Eviction With the rate of evictions on the rise in recent months and the expectations that eviction numbers will grow,...
Read More

What to Expect Once You’ve Decided to File Bankruptcy from Home

File Bankruptcy from Home There are a few things that happen when you file bankruptcy from home. An automatic stay...
Read More

Bankruptcy

For The Next 5 Days GET A FREE BOOK About Bankruptcy

Learn More

Infographics

We are A Debt Relief Agency.
We help people file for bankruptcy under the Bankruptcy Code

Pay Online Bankruptcy Courses Newsletter Subscription

NACBA Logo comodo avvo1 avvo2 avvo3 LEA BBB Logo RG Seal

Call For A Free Initial Consultation

813.254.5696

Tampa Office

Law Offices of Robert M. Geller, P.A.
807 West Azeele Street
Tampa, FL 33606
T: (813) 254-5696
T: (800) 853-7549
F: (813) 253-3405

Map And Directions

St. Petersburg Office

Law Offices of Robert M. Geller, P.A.
125 5th Street South
(Wells Fargo Financial Center)
2nd Floor, Suite G
St. Petersburg, FL 33701
T: (727) 532-3939

Map And Directions

Pasco Office

23526 State Road 54
Lutz, FL 33559
T: (813) 336-2320

Map And Directions