Can a Trust Protect Your Assets?

A living trust (also called a revocable trust) is a popular estate planning tool that manages your assets during your life and directs their distribution after your death.

You, as the trust grantor, typically also serve as the trustee and initial beneficiary, meaning you retain full control over the trust assets. The primary benefit of a living trust is probate avoidance. Assets held in the trust pass to your beneficiaries without the delay, cost, and public disclosure of probate court.

A living trust can also provide continuity if you become incapacitated, since a successor trustee can step in to manage the trust assets on your behalf.

Many people mistakenly believe that placing assets in a living trust will protect them from legal judgments. In reality, a standard revocable living trust offers no asset protection during your lifetime.

Why a Living Trust Won’t Protect Your Assets from Lawsuits

A living trust does not make you “judgment-proof.” Because the trust is revocable and you maintain control over its assets, the law treats those assets as if they were still yours.

If you are sued in Florida, assets in your revocable trust remain vulnerable to the claims of your creditors or a court judgment. In fact, a court can order you to revoke the trust or turn over assets from the trust to satisfy a judgment against you

The trust’s revocable nature means you can undo or change it at any time. If a judge orders a payout, you’re legally obligated to comply just as if you owned the assets outright.

Even after your death, the assets in a revocable trust may still be accessible to your creditors. Florida law allows creditors to make claims against a decedent’s trust assets, since those assets are essentially a substitute for a will and probate estate.

No Protection for Self-Settled Trusts

Florida does not permit someone to use a self-settled trust (a trust you create for your own benefit) to defeat your own creditors.

In other words, you cannot shield your assets by placing them in a revocable trust where you are both the trust maker and the beneficiary. Florida courts have repeatedly upheld this rule as a matter of public policy.

A few other states have enacted laws to allow Domestic Asset Protection Trusts (DAPTs) for settlors’ own benefit. Florida has no such statute. Several court decisions in Florida explicitly reject the idea of protecting self-settled trusts from creditor claims.

If a Florida resident tried to use an out-of-state asset protection trust to hide assets, a Florida court may still apply Florida law and treat the trust assets as available to creditors. You can’t simply put your money in a domestic asset protection trust and expect lawsuit immunity.

Common Misconceptions About Living Trusts and Asset Protection

Many people set up living trusts under the false impression that doing so will protect their property from lawsuits or creditors.

This misconception often arises because the word “trust” sounds similar to specialized asset protection trusts, such as offshore trusts or domestic asset protection trusts.

While living trusts do provide privacy (since trust documents aren’t filed in court), privacy is not the same as creditor protection.

For example, even though a living trust keeps your financial affairs out of the public probate records, a determined creditor can still discover and reach those assets through financial discovery post-judgment. The trust offers no legal barrier to collection efforts.

If you can access the assets, so can your creditors. In a revocable trust, you retain complete control, which is exactly why those assets remain collectible for a judgment creditor.

What a Living Trust Is Good For

A living trust can be a useful tool for estate planning goals like avoiding probate, maintaining privacy, and providing for your own incapacity.

For example, a Florida couple might create a living trust to ensure that when one spouse passes away, the assets are transferred seamlessly to the surviving spouse and then to the children without any court intervention.

The trust can include customized instructions for distributing assets over time (such as managing funds for minors until they come of age) and can help avoid family disputes by clearly defining who gets what.

Unlike a will, a trust doesn’t become part of the public record, so your financial details and beneficiaries remain confidential.

If you become incapacitated, the successor trustee you named can manage the trust assets immediately, avoiding the need for a court-appointed guardian. In all these ways, a living trust can be a flexible, family-friendly tool for handling assets and inheritance. It is not designed to handle creditor risks.

Irrevocable Trusts Can Protect Assets from Creditors

Unlike a living trust, an irrevocable trust can, in the right circumstances, protect assets from future creditor claims.

When you transfer assets into an irrevocable trust, you give up control and ownership of those assets. They now belong to the trust, managed by an trustee for the benefit of the trust beneficiaries.

Because you no longer have control or a legal ownership interest, those assets are generally out of reach of your personal creditors.

For example, a parent might establish an irrevocable trust for their children and fund it years before any liability issues arise. If the parent is later sued, the assets in the trust are not owned by the parent and thus not subject to that judgment.

Irrevocable trusts are a common tool for advanced estate and asset-protection planning, and they can also offer estate tax benefits (such as removing life insurance or appreciating assets from your taxable estate).

However, you cannot name yourself as a beneficiary if you want to use the irrevocable trust to protect your assets. In other words, you cannot set up an irrevocable trust for your own benefit and hide assets there—that would be a prohibited self-settled trust in Florida.

Additionally, transfers to an irrevocable trust can be undone if a court finds you made them with the intent to hinder creditors (this is called a fraudulent transfer).

That being said, an irrevocable trust, when used appropriately, can effectively shield assets from future creditors by taking them outside of your control.

Offshore Trusts Can Protect Assets from Creditors

For clients facing substantial liability exposure, an offshore asset protection trust may offer a higher level of protection than any domestic strategy alone. The Cook Islands are considered the best country to establish an offshore trust.

An offshore trust is irrevocable and administered by an independent trustee located outside the United States. Once assets are transferred to the trust, U.S. courts cannot compel the foreign trustee to comply with a judgment from a domestic lawsuit.

Even if a creditor obtains a judgment in a U.S. court, enforcing it against the assets held in the offshore trust becomes extremely difficult, time-consuming, and expensive—often impossible in practice.

Offshore trusts are not just for the ultra-wealthy. Many of our clients use offshore planning to protect investment accounts, real estate proceeds, or business sale proceeds.

Offshore trusts can also hold ownership of offshore LLCs, which in turn may hold liquid assets or brokerage accounts. With an offshore LLC, our client typically serves as the LLC manager, allowing them to directly control the assets within the trust structure.

The key advantage of an offshore trust is that creditors must litigate in a foreign jurisdiction, under unfamiliar laws, and with high evidentiary burdens.

For example, the Cook Islands requires creditors to prove beyond a reasonable doubt that the trust was created with fraudulent intent.

Individuals seeking to establish an offshore trust must comply with all U.S. tax and disclosure requirements. Offshore trust structures cannot be used to evade taxes. When properly implemented, however, an offshore trust can lawfully protect assets from civil judgments.