Living Trust FAQ

Questions:

• What is a living trust?
• Why should I make a living trust?
• How does a living trust avoid probate?
• Is it expensive to create a living trust?
• Is it a hassle to hold property in a living trust?
• Is a living trust document ever made public, like a will?
• Does a living trust protect property from creditors?
• If I make a living trust, do I still need a will?
• Can a living trust reduce estate taxes?

Answer:

Does a living trust protect property from creditors?

No. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

Generally, after your death, all property you owned -- including assets held in a living trust -- is subject to your lawful debts. For example, if your house is held in trust and passes to your children at your death, a creditor could demand that they pay the debt, up to the value of the house. Ownership of real estate is always a matter of public record, so creditors can always find out who inherited real estate. It can be more difficult for creditors to know who inherits other property, however (because a trust document, unlike a will, is not a matter of public record), and they may not bother tracking it down.

On the other hand, probate can also offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.

Still wondering whether a living trust is right for you? Check out Nolo's article Why You May Not Need a Living Trust.