When it comes to estate planning and asset protection, there’s a lot of confusion—especially around the role of Trusts. Much of the complexity in this area stems from a few common mistakes about how different types of trusts actually work and what they are built to protect. Let’s break it down in layman’s terms:
Trusts come in two basic forms: revocable and irrevocable.
Revocable Trusts are the most commonly used in estate planning. As the name implies, they’re flexible—you can change them, revoke them, take assets out, and even shut the whole thing down if you want. Because of this flexibility, assets in a revocable trust are still legally considered yours. That means these assets can still be reached by creditors if you’re sued personally (and you lose the lawsuit). Revocable Trusts are not designed to shield assets from creditors, but rather to avoid the lengthy and expensive probate process so that your heirs can get the assets in your estate immediately when you pass away, rather than having to wait around for a year while they deal with the Probate court.
Irrevocable Trusts, on the other hand, are set in stone. Once you place assets into an irrevocable trust, you’re giving up control and ownership of them. The assets belong to the trust, not to you (all your base are belong to us ). And because of this, they’re usually off-limits to both you and creditors—but only if the trust is set up properly and not done with the “fraudulent intent” to avoid creditors.
Irrevocable trusts are rarely necessary. They’re typically used for very high-value assets, like very large businesses, aircraft, family estates, or heirlooms that need to be preserved across generations. They’re powerful tools, but they come with serious trade-offs in terms of access and control.
Here’s where the confusion often arises: when lawyers talk about “asset protection,” they usually mean strategies involving irrevocable trusts and other complex legal structures that can shield assets from lawsuits, taxes, and creditors.
But when non-lawyers use the term “asset protection,” they’re often referring to revocable trusts—thinking these protect their wealth in the same way. Unfortunately, they don’t.
Revocable trusts are great tools for:
But they don’t offer true protection from creditors or lawsuits because the assets in the trust are still legally yours.
Sometimes people worry about catastrophic events—like being found at fault in a major accident and losing everything. While it’s theoretically possible for someone to go after assets in a revocable trust in such a scenario, it’s an extreme corner case. More commonly, liability would be shared, insurance would come into play, or the fault wouldn’t be clear-cut.
That said, if you’re particularly concerned about lawsuits, liability, or preserving generational wealth, it may be worth talking to an attorney who has extensive experience in irrevocable trusts—just be prepared. These trusts are complex and can cost $20,000 or more to set up properly. If that amount is too high to warrant protection of the assets you would want to put into an irrevocable Trust, then you probably just want special insurance in case you do get creditors for some extreme reason (such as umbrella policies).
Estate planning doesn’t have to be a mystery, but it’s important to understand the tools you need. Not every Trust is a shield, and not every family needs an irrevocable fortress to protect their assets. The key is clarity: know your goals, understand the legal structure you’re using, and work with a qualified professional who can match your plan to your needs.
If you’re looking to explore estate planning options or just want to make sure your assets are set up wisely, a simple conversation with a trusted advisor can go a long way.
