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Trusts 101

Protection From Creditors

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Assets in a revocable trust are not protected from the grantor's creditors. Since the trust is revocable, the assets are still considered to be owned by the grantor for purposes of creditor/debtor law.

If a trust is set up on an irrevocable basis, the assets may be protected from creditors. The situation is similar to giving away the assets. Once you've given the assets away, they are no longer yours. Because they're no longer yours, a creditor cannot go after them.

That said, a trust cannot be used to defraud creditors. If a creditor believes that assets are moved into a trust to defraud creditors, the transfer can be attacked and the assets used to pay creditors.

Trusts are created under the laws of the various states. Not all of the laws are the same. For example, certain states allow a grantor to establish a trust with significant protection from creditors. In other states, that is not possible.

If you are in a financial crunch and want to protect assets, it is advisable to consult with an experienced lawyer.

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