Yes, judgment creditors may be able to garnish assets in some situations. However, the amount they can collect in California is limited to the distributions the debtor/beneficiary is entitled to receive from the trust.
Trusts also can be very useful for asset protection purposes if the creditors of the beneficiary are prevented from reaching the trust's assets. A trust can be an effective way to place assets outside the reach of creditors.
An asset protection trust (APT) is a complex financial planning tool designed to protect your assets from creditors. APTs offer the strongest protection you can find from creditors, lawsuits, or judgments against your estate. These vehicles are structured as either "domestic" or "foreign" asset protection trusts.
An asset protection trust has disadvantages as well, though. These include: Limited availability: Not all kinds of APTs are available in all places. For example, in the US, domestic APTs are fairly new and—as of mid-2022—are only available in 17 states.
If you already have some legal experience, you might see how an asset protection trust is excellent for protecting assets from litigation and creditors. By removing ownership of the valuable assets in question away from you and your immediate family members, you make those assets practically untouchable…
A living trust does not protect your assets from a lawsuit. Living trusts are revocable, meaning you remain in control of the assets and you are the legal owner until your death. Because you legally still own these assets, someone who wins a verdict against you can likely gain access to these assets.
Drafting a will is simpler and less expensive, but creating a revocable living trust offers more privacy, limits the time and expense of probate, and can help protect in case of incapacity or legal challenges.
It can be advantageous to put most or all of your bank accounts into your trust, especially if you want to streamline estate administration, maintain privacy, and ensure assets are distributed according to your wishes.
Thus, since you have the same degree of control over your property, creditors may access the trust's assets almost as easily as they can access your assets which are not in such a trust. On the other hand, the less control you have over those assets, the less chance a creditor can reach those assets.
Here in California, homesteading protects you up to $300,000 of your property value. If your property is perhaps valued at $400,000, this is an area you'd really need to consult with a lawyer about if the lawsuit would exceed the $300K homestead protection.
If a creditor files a lawsuit against you and wins a judgment, they can seize quite a few assets. They can garnish your wages, levy your bank account, and even go after your personal property. This includes everything from cars and furniture to clothing and household goods.
You can stop a bank account garnishment by filing a claim of exemption or objecting to the garnishment in court. To challenge the garnishment, you must prove: The funds in the account are exempt (e.g., Social Security, disability, or other protected income). The creditor failed to follow proper legal procedures.
Establishing and maintaining a trust can be complex and expensive. Trusts require legal expertise to draft, and ongoing management by a trustee may involve administrative fees. Additionally, some trusts require regular tax filings, adding to the overall cost.
A trust will allow you to achieve multiple objectives that will cannot. That said, these benefits may come at a price. Whether setting up a living trust is better than writing a will depends on the additional benefits and whether they outweigh the costs.
Benefits of trusts
Some of the ways trusts might benefit you include: Protecting and preserving your assets. Customizing and controlling how your wealth is distributed. Minimizing federal or state taxes.
Irrevocable trusts
This can give you greater protection from creditors and estate taxes. As stated above, you can set up your will or revocable trust to automatically create irrevocable trusts at the time of your death. When you use your will to create irrevocable trusts, it's called a testamentary trust.
Trusts are an excellent estate planning tool for Californians as they provide asset protection. Although someone generally can't bring a lawsuit against a trust, filing a claim against the trustee can occur.
Once you transfer your assets into such a trust, they are no longer under your personal control—making them inaccessible to those who might seek to seize them. This permanence provides a sturdy barrier against potential threats, ensuring that your wealth remains intact for your beneficiaries.
Methods for protecting assets from lawsuit in California include shifting ownership into legal entities such as trusts, taking advantage of legal protections for homesteads and retirement accounts, and maintaining appropriate insurance coverage.
Invisible assets, commonly referred to as intangible assets, are resources that cannot be seen or touched but still provide value to the holder. Examples of invisible assets include brand recognition and intellectual property, such as trademarks, copyrights, or patents.
Secret trusts and LLCs are increasingly common ways wealthy people are shielding assets in divorce. Trusts and offshore accounts controlled by a shadowy company.