QUESTION: Will a Revocable Living Trust protect my assets from lawsuits? (Sep 2012)

ANSWER:      Ethan R. Okura, Attorney Specializing in Estate Planning (Trusts, Wills, Medicaid Planning & Probate).  No, a revocable living trust will not protect your assets from lawsuits.  You can cancel your revocable trust and get assets out of the trust at any time.  Therefore, your creditors (people to whom you owe money) can also get assets out of your revocable trust.  An irrevocable trust (one that you cannot change or cancel) can protect your assets from lawsuits.  Generally, if you put assets into an irrevocable trust, and the trust can distribute assets back to you, then those assets are not protected from your creditors.  This was decided by the Hawaii Supreme Court in 1955 in a case called Cooke Trust Co. v. Lords.  Also, if you already are in debt or have a lawsuit against you, your existing creditors can reach assets you put into an irrevocable trust by proving that it was a “fraudulent conveyance.”  If you use it properly, an irrevocable trust can protect assets from both your future creditors and the creditors of the persons you name as beneficiaries of the trust.

In July 2011, the State Legislature amended the “Hawai‘i Permitted Transfers in Trusts Act”, which allows a person to create an Irrevocable Trust that names herself as a beneficiary and have those assets protected from her creditors and lawsuits against her. You have to wait two years after transferring an asset to the trust in order to gain that protection, and the fraudulent conveyance rules still apply so you can’t transfer assets to an asset protection trust after someone has a claim against you and still protect those assets.

2 replies
  1. Sanford Okura
    Sanford Okura says:

    Please submit any specific questions you have through our “contact us” link above. Someone will respond to you via email. If your questions is a common one, it may be considered as a future blog topic.

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