Can a Trust Protect My Assets from Creditors and Lawsuits in Maryland?

Trusts can be used to put assets in control of another party to benefit someone or something. Indeed, trusts are a very flexible tool for getting money, property, and other assets to be distributed where you want them to go. If someone has placed assets in a trust and is subsequently sued, is the subject of debt collection, or suffers other hardship, they may be wondering if other parties can get their hands on the assets they have put away in trust.

Whether a trust can protect your assets from creditors or lawsuits really depends on the nature of the trust in question. Generally, if the trust is revocable, it will not protect your assets from creditors or plaintiffs suing you for damages because you could simply put assets into the trust when you want to, then take them back afterwards. However, irrevocable trusts that put assets beyond your reach may be able to safeguard your assets from being taken by another party.

To have our Maryland trusts and estate lawyers help you with your situation, call Rice, Murtha & Psoras at the number (410) 694-7291.

Which Trusts Can Protect Assets from Creditors and Lawsuits in Maryland

Whether assets you put in a trust can be protected from creditors and lawsuits depends on the kind of trust those assets are present in. Broadly speaking, there are two kinds of trusts: revocable trusts and irrevocable trusts. Our Silver Spring, MD trusts and estate lawyers will explain below how each kind of trust works with regard to protecting assets from creditors.

Revocable Trusts

In a revocable trust, you retain control of the assets in it. You are the trustee of a living trust for as long as you are alive. There are many actions you are able to take regarding the assets in a revocable trust. You can add assets into the trust or take them out, change beneficiaries, unilaterally sell or spend any trust assets, and more.

Because you have so much control over the assets in a revocable trust, there are few of the benefits you would normally associate with a trust. Revocable trusts are sometimes called “living trusts” because they are created during your lifetime as opposed to in your will.

More importantly, for our purposes, revocable trusts, for the most part, do not protect assets from creditors or from lawsuits. In revocable trusts, you are treated as still owning the stuff in it, so creditors and plaintiffs can go after it.

There is, however, an important exception to this general rule. A revocable trust can have what is called a “spendthrift clause.” This clause makes it so that if you pass away, the beneficiary does not inherit any interest in the assets that were in the trust. So, while your assets that are in a revocable trust can still be grabbed by creditors while you are alive, you do not need to worry about anyone inheriting any debts.

Irrevocable Trusts

Irrevocable trusts, on the other hand, do not give you control of the assets you put in them. When you create an irrevocable trust, you name someone other than yourself as the trustee. The trustee, not you, will have control of the assets you put into the trust.

Because you do not have control over the assets you put in an irrevocable trust, it is very hard for creditors and plaintiffs to access those assets. The lack of control leads to the conclusion that you do not own the assets you place in an irrevocable trust, so adverse parties cannot reach them when they go after you.

What Makes a Trust Revocable or Irrevocable in Maryland?

Md. Code, Ests. & Trs. Art., § 14-402(e), governs how trusts are categorized in Maryland. Essentially, you must declare whether the trust is revocable or irrevocable when it is declared in writing. As the grantor, you would have a lot of control over whether a trust is revocable or irrevocable. Our Annapolis trusts and estate lawyers can advise you as to which kind of trust makes sense for you.

If it is not specified what kind of trust a given trust is in the declaring documents, the trust is considered revocable. Therefore, it is of great importance that you specifically state that a trust is irrevocable if you want it to be able to guard assets placed in it from creditors and plaintiffs.

What Should You Do with Your Trust Assets if You Are Sued or in Debt in Maryland

It can be scary to be the subject of a lawsuit or be hounded by debt-collection entities. If you have not taken precautions already, you may want to know what you should do with any assets you have in trust in these situations. While it ultimately will depend on the unique facts and circumstances of your situation, our Baltimore trusts and estate lawyers have some helpful tips that can apply to you.

Trusts sometimes have a reputation of being shelters from having assets seized. For that reason, some people may want to put important assets in an irrevocable trust as soon as court proceedings or debt collection efforts are levied against them. We advise against doing that as an impulsive decision. When you put assets in a revocable trust, you are losing a tremendous amount of control of those assets. The trustee can do whatever they want within the purpose of the trust, so there is no guarantee that they will follow your wishes. Additionally, it can appear to courts that you are trying to hide things from plaintiffs or debt collectors if you suddenly decide to put things in a trust, so you may want to consult with an attorney before making such a decision.

Talk to Our Maryland Trusts and Estate Lawyers About Your Case

Rice, Murtha & Psoras has trusts and estate lawyers ready to help you when you contact us at (410) 694-7291.