Revocable vs. Irrevocable Trust for Asset Protection in Florida

Revocable and irrevocable trusts serve fundamentally different purposes when it comes to creditor protection. A revocable trust provides no asset protection under Florida law. An irrevocable trust can provide strong protection, but only when properly structured to avoid the self-settled trust prohibition.

The distinction matters because many Florida residents create revocable living trusts for estate planning purposes and mistakenly believe those trusts also shield their assets from lawsuits. Understanding which type of trust protects assets and which does not is the starting point for any trust-based asset protection strategy.

Revocable Trusts and Creditor Exposure

A revocable living trust allows the grantor to maintain full control over trust assets during their lifetime. The grantor can amend the trust, change beneficiaries, withdraw assets, or revoke the trust entirely at any time. For estate planning purposes, revocable trusts avoid probate, provide for incapacity management, and maintain privacy.

Florida Statutes § 736.0505(1)(a) provides that while a trust is revocable, all trust property is subject to the claims of the settlor’s creditors. A judgment creditor can levy on every asset inside a revocable trust as though the trust did not exist. Spendthrift provisions, discretionary distribution language, and any other protective clauses in the trust agreement are irrelevant for asset protection purposes while the trust remains revocable.

The legal reasoning is straightforward. Because the grantor retains the power to take back all trust assets at any time, the grantor is treated as the true owner of the property. A creditor’s right to reach the grantor’s assets extends to anything the grantor could reach, which in a revocable trust includes every asset the trust holds.

After the grantor’s death, a revocable trust becomes irrevocable by operation of law. At that point, the trust’s spendthrift and discretionary distribution provisions become enforceable, and the beneficiaries’ interests are protected from their own creditors under the same rules that apply to any irrevocable trust.

Irrevocable Trusts and Creditor Protection

An irrevocable trust provides creditor protection because the grantor permanently transfers assets out of personal ownership. The grantor cannot revoke or amend the trust, cannot withdraw assets, and cannot direct the trustee to return property. The trust holds legal title to the assets, and the trustee manages them according to the trust agreement.

Florida law protects irrevocable trust assets through two independent legal doctrines.

Spendthrift protection under § 736.0502 prevents a beneficiary’s creditors from attaching or levying on the beneficiary’s interest in the trust. A valid spendthrift clause must expressly restrain both voluntary and involuntary transfers of the beneficiary’s interest.

Discretionary distribution protection under § 736.0504(1) prevents a creditor from compelling the trustee to make a distribution to the beneficiary. When the trustee has discretion over the timing and amount of distributions, no creditor can force the trustee’s hand, even if the creditor holds a valid judgment against the beneficiary.

An irrevocable trust that includes both provisions creates overlapping protections that make it extremely difficult for a beneficiary’s creditors to access trust property. The assets remain protected as long as they stay inside the trust. Once the trustee distributes funds to the beneficiary, the distributed money enters the beneficiary’s personal accounts and becomes reachable by creditors.

The Self-Settled Trust Limitation

The most important limitation on irrevocable trust protection in Florida applies when the grantor is also a beneficiary. Under § 736.0505(1)(b), a creditor of a person who is both the settlor and a beneficiary can reach the maximum amount that could be distributed to the settlor.

A self-settled irrevocable trust provides no creditor protection in Florida regardless of whether the trust includes spendthrift provisions, discretionary distribution language, or any other protective features. The statute overrides all of them when the grantor retains a beneficial interest.

Florida’s prohibition on self-settled trust protection also extends to domestic asset protection trusts formed in other states. A Florida resident who creates a DAPT in Nevada or South Dakota remains subject to Florida’s public policy. Florida courts apply Florida law to the Florida debtor, not the law of the DAPT state.

For the grantor’s creditors to be unable to reach irrevocable trust assets, the grantor must not be a trust beneficiary at the time the trust is created and funded. A trust created by one spouse for the benefit of the other spouse, such as a spousal limited access trust, satisfies this requirement because the creating spouse holds no beneficial interest.

Comparison Table

Feature	Revocable Trust	Irrevocable Trust (Third-Party)	Irrevocable Trust (Self-Settled)
Grantor retains control	Yes	No	No
Creditor protection for grantor	None	Strong (grantor is not a beneficiary)	None (§ 736.0505(1)(b))
Creditor protection for beneficiaries	None while grantor is alive; protected after grantor’s death	Spendthrift + discretionary protections apply	Spendthrift + discretionary protections apply to non-settlor beneficiaries only
Can be amended or revoked	Yes	No (except through trust protector powers or court action)	No
Avoids probate	Yes	Yes	Yes
Estate tax treatment	Included in grantor’s taxable estate	Removed from grantor’s taxable estate (if properly structured)	Varies

When Each Trust Type Is Appropriate

A revocable trust is the right choice when the primary goals are probate avoidance, incapacity planning, and privacy. The grantor retains full control and flexibility. If the grantor has no significant creditor exposure, the lack of asset protection is not a meaningful disadvantage because the grantor does not need it.

An irrevocable trust is the right choice when the grantor wants to protect specific assets from potential future creditors. The grantor must be willing to give up direct ownership and control of those assets. A family irrevocable trust, where the grantor creates the trust for a spouse and descendants without retaining any beneficial interest, provides the strongest creditor protection available under Florida domestic trust law.

Many Florida residents use both types of trusts simultaneously. A revocable living trust holds assets the grantor wants to control during their lifetime and pass to beneficiaries at death without probate. A separate irrevocable trust holds assets the grantor wants to protect from creditors during their lifetime. The two trusts serve different functions and do not conflict with each other.

Converting a Revocable Trust to an Irrevocable Trust

A revocable trust automatically becomes irrevocable upon the grantor’s death. At that point, the trust’s protective provisions activate, and the beneficiaries’ interests are protected from their own creditors under Florida’s spendthrift and discretionary distribution statutes.

During the grantor’s lifetime, converting a revocable trust to an irrevocable trust requires creating a new irrevocable trust and transferring assets from the revocable trust to the new structure. Simply amending a revocable trust to remove the revocation power does not create the same protection as a properly drafted irrevocable trust because the terms, distribution standards, and trustee structure may not be optimized for asset protection.

The timing of conversion matters. Transferring assets from a revocable trust to an irrevocable trust is subject to fraudulent transfer scrutiny under Florida Statutes Chapter 726. The four-year statute of limitations and insolvency analysis apply to the transfer just as they would to any other asset transfer. A conversion made in anticipation of a creditor claim is vulnerable to being reversed by a court.

Beyond Domestic Trusts

For individuals whose creditor exposure exceeds what a domestic irrevocable trust can address, an offshore asset protection trust provides additional protection by placing assets and the trustee outside U.S. court jurisdiction. An offshore trust is irrevocable and self-settled, but it operates under the laws of a jurisdiction that permits self-settled trust protection and does not recognize U.S. civil judgments.

A Cook Islands trust is the most widely used offshore structure for Florida residents. The Cook Islands imposes a two-year statute of limitations on fraudulent transfer claims and requires the creditor to prove fraud beyond a reasonable doubt. The offshore trustee operates outside U.S. court authority, which means a U.S. court order directed at the trustee has no binding effect. Choosing among these trust-based asset protection strategies depends on the client’s net worth, risk profile, and willingness to accept the costs and complexity of offshore planning.