Does a Trust Protect You From Litigation?

By nature, litigation is a complex process. It can leave a person overwhelmed and unsure of what to expect. It can be especially stressful when it has the potential to affect your protected assets. If you have taken steps to protect your assets, it is likely you have chosen to secure at least a portion of them within a trust. If faced with a legal action, it is reasonable to ask: Does a trust protect you from litigation?

The answer to this question can be complex, and being informed of your options is the first step in protecting your assets. Having an experienced attorney by your side is critical in making decisions during litigation. At Ross Law Group, APC, our Newport Beach trust & estate litigation attorney is available to provide options and be a vigorous defender of your interests.

What a Trust Does

A trust is an entity that manages assets on behalf of another person or group of people. In essence, it both divides and dictates the disbursement of ownership over assets such as property and other wealth. When a trust is set up, there is an agreement between three parties:

• The grantor. They are the one who creates the trust and transfers assets.
• The trustee. This is the manager of the trust, who does so on behalf of the beneficiary. A trustee is bound by a fiduciary duty to act in the interest of the beneficiary.
• The beneficiary. This is who receives benefits from the trust, usually in the form of income, principal, and sometimes both.

There are many reasons to set up a trust. In general, they are set up to provide for friends and family after a grantor is deceased. However, this is not always the case.

Trusts, beyond estate planning, may be set up to mitigate tax costs on property or protect assets from mismanagement by beneficiaries. Likewise, setting up a trust can help protect assets from the probate process, which can cost between three to seven percent of an estate’s total value.

Importantly, trusts are a good way to ensure asset protection. Placing a trustee over the management of certain wealth and assets makes it harder for other parties to gain access to it.

Trusts and Protection From Creditors

It is not uncommon for the protections a trust offers assets to be challenged. In 2024 alone, Orange County saw over 2,000 court cases filed involving estate disputes. Even if a trust has been set up with careful consideration, it does not guarantee that outside parties can gain access to your assets.

While there are many kinds of trusts, two categories are important to be familiar with when you are considering them as wealth protection.

• Revocable trusts. These allow for changes to be made to them by the grantor and the trustee and offer a large amount of flexibility. However, with revocable trusts, assets placed in them are still technically owned by the grantor. This means that if you, as the grantor, are involved in litigation and lose, creditors may be able to access the assets managed by the trustee. In this sense, revocable trusts are considered a weak option when it comes to protecting wealth from third parties.
• Irrevocable trusts. As implied in the name, irrevocable trusts cannot be changed or “revoked” once set up. After transferring property into an irrevocable trust, a grantor, in essence, relinquishes ownership of the asset over to the trustee. This can be an ideal situation if you are seeking wealth protection, because as the assets are no longer the property of a grantor, they are usually protected from third parties following litigation. However, it must be stressed that when setting up an irrevocable trust, care is taken to create one that suits the needs and expectations of the person making it.

FAQs

Q: Do Trusts Shield You From Lawsuits?

A: While trusts do not shield you against claims, they are a good way to protect your assets from being affected by their negative outcome. One of the ways to do this is to set up what is known as an irrevocable trust. An irrevocable trust permanently separates ownership of your assets. Usually, the administration of the trust is protected from outside access.

Q: How Can I Protect My Money From Litigation?

A: There are a number of ways to protect your money from litigation. The most secure is the setting up of an irrevocable trust. Other ways to protect your money may be to diversify your assets in protected procedures such as IRAs, mortgages, and annuities. All of these come with circumstances that protect them, to varying degrees, from creditors.

Q: Can a Lawsuit Take Money From a Trust?

A: Under certain circumstances, there is a possibility that a claim against you may affect the money in a trust that you have set up. This most commonly occurs with what are known as revocable trusts. Because money and other assets in a revocable trust are still owned by you, if a claim ends in a decision against you, it is feasible that the other party may be granted access to the assets held within it.

Q: What Does a Trust Protect You From?

A: A trust can protect you from several things. Most people set up trusts to ensure the management of their assets after they are gone. Trusts can bypass the expensive probate processes and avoid mismanagement by heirs. A well-organized trust can also minimize the damage to your wealth from charges such as estate taxes and, depending on the type of trust you set up, from being accessed by creditors.

Contact Us

Serving the people of Newport for over two decades by providing counsel in litigation, trust, probate law, and more, Ross Law Group, APC, is here to answer any questions you may have. If you are facing legal action, our experienced Newport Beach Trust & Estate Litigation Attorney is ready to provide solutions and offer a rigorous defense of you and your assets.

Contact us today to learn how we can help you.