Why Your Revocable Trust Won’t Shield You from Lawsuits

Many people create a revocable living trust assuming it will shield their assets from lawsuits, debts, or creditors. That belief is common, but wrong.

While a revocable trust is one of the most effective tools for avoiding probate and streamlining estate administration, it does not offer any meaningful creditor protection during your lifetime. If asset protection is one of your goals, you’ll need to look beyond a basic revocable trust.

What a Revocable Trust Does Well

Revocable living trusts are excellent tools for organizing your estate. In California especially, they help avoid probate court—which can be time-consuming, expensive, and public. When used correctly, a revocable trust allows your chosen trustee to step in if you become incapacitated, and to distribute your assets smoothly after your death.

Key benefits include:

• Avoiding probate and court oversight

• Centralizing control of your assets in one document

• Allowing updates at any time during your life

• Facilitating privacy and faster distribution for your heirs

But while these features are powerful, they should not be confused with asset protection. A revocable trust is designed for management—not shielding—of wealth.

Why a Revocable Trust Doesn’t Protect Against Creditors

You Still Own and Control the Assets

Even though the trust holds title to your property, you retain complete control. You can revoke the trust, change beneficiaries, withdraw assets, or even dissolve it entirely. Because of this, the law sees no distinction between you and your trust for purposes of liability.

As a result:

• Any creditor with a judgment against you can collect from assets held in your revocable trust.

• If you are sued, those assets are fair game.

• If you file for bankruptcy, the assets must be listed and are part of your estate.

The trust structure doesn’t create legal distance between you and your assets. It’s a tool for convenience and continuity—not protection.

What Changes After Death?

Upon your death, your revocable trust becomes irrevocable—meaning it can no longer be changed. At that point, some protections may begin to apply, but not immediately.

In California, your creditors still have the right to pursue claims against your estate—including assets held in a revocable trust—for a limited period after your death. 

Your successor trustee must pay valid debts before distributing assets to beneficiaries.

If your trust includes spendthrift clauses or names a trustee with discretion over distributions, your beneficiaries may gain some protection from their creditors once they inherit. However, this applies to your heirs—not you.

Better Tools for Asset Protection

If you’re concerned about lawsuits, liability, or future claims, you need to add other layers to your planning. Options include:

Irrevocable Trusts

Unlike revocable trusts, irrevocable trusts transfer legal ownership of the assets to the trust. When properly structured, these assets are no longer yours—and therefore not reachable by your creditors. These are often used to:

• Remove life insurance proceeds from your estate

• Protect gifts to children or grandchildren

• Shield a portion of your estate from future claims
  

Keep in mind: irrevocable trusts must be created before any claim or liability arises, and you must be willing to give up control over those assets. For many people, that’s a dealbreaker - they may need access to those funds during their lifetime.

LLCs 

For real estate, business interests, or investment portfolios, using a limited liability company (LLC) can help reduce personal liability. If a judgment is entered against you personally, the LLC structure can make it harder for creditors to access the company’s assets. Likewise, if the LLC is sued, your personal assets are generally protected from the company’s debts and obligations—these are known as its “internal protections.”

Umbrella Liability Insurance

One of the most overlooked—and cost-effective—asset protection tools is umbrella liability insurance. This type of policy adds an extra layer of protection on top of your existing home, auto, or rental property insurance. Coverage typically starts at $1 million and can go as high as $5 million or more, depending on your needs.

Umbrella policies step in when a claim exceeds the limits of your underlying policies. For example, if you’re found liable for a serious car accident or someone is injured on your property, the umbrella policy can cover the excess damages and legal fees. Best of all, the cost is relatively low—often just a few hundred dollars a year—making it an affordable and effective first line of defense.

The key takeaway: A revocable living trust is essential for estate organization and probate avoidance—but it’s not an asset protection plan. If protecting wealth from creditors is important to you, pair your trust with other strategies before a problem arises.

Please contact me with any questions.

About the Author

Kendra Hampton has nearly 20 years of legal experience. She manages her own estate planning practice and has helped hundreds of clients create and update their trust, will, and powers of attorney. Kendra is committed to educating clients on the importance of estate planning and crafting personalized planning strategies.