Do you plan on using a Trust to avoid current or future creditors? Just know that plan will probably not work out for you.
An idea that gets tossed my way in conversations is that if the Trust owns property, then you don’t own it as an individual. If you don’t own it as an individual, then a creditor can’t get to those assets because you don’t own them. Seems simple. Asset Protection.
There is the flaw to this thought: the most widely used trust is a revocable trust. This means you have the power to add and subtract assets from the trust’s ownership, amend the trust, terminate the trust, etc. So, really, from a judge’s perspective, you still own these assets.
Even if you created one of the trusts that allows you to avoid creditor’s claims, you still aren’t guaranteed to be judgment proof if a judge determines that the purpose behind this transfer was fraudulent, see Idaho’s and the Federal Fraudulent Transfers Act, or if the transfer to Trust was done within a statutory time limit, called a look back.
This doesn’t mean that if a creditor comes after you, you will lose everything. Idaho does have a law called Homestead Exemption, which allows for up to $100,000 in equity in the home you own to be free from attachment by a creditor. And, there are a few other items of yours that are exempt, upto certain dollar limits.
Additionally, there are asset protection strategies out there, ie using the exemptions, certain types of trusts for specific and narrow purposes, “equity stripping”, LLCs, Limited Partnerships, Family Limited Partnerships, and good old fashioned Pre and Post Nuptial Agreements (a divorcing spouse can be a “creditor” as well).
In the end, there are a plethora of great reasons to create a Trust, but protecting assets from creditors is not one of them.
If you have questions, concerns, or would like to find out how to create your estate plan, call Jeppesen Law at 208-477-1785 or email email@example.com