Q I understand that when you set up a trust, the assets that are in the name of the trust are protected from lawsuits and creditors. If this is so, it seems like that in today’s litigious society, everyone should set up a trust! When I talked to a friend about this, she said, no, that you only need a trust if you own real estate or otherwise have a lot of assets. I am just now buying a house and want to protect it from potential lawsuits, should I pay an attorney to set up a trust?

A The trusts we normally set up in California as part of a good estate plan are revocable living trusts. In your situation, you would set the trust up, title your new home to the name of the trust and then, when you pass away, the house will go to the beneficiaries as outlined in your trust. Trusts can also be extremely helpful if you were to become incapacitated, in which case your trustee can step in and help manage the assets in your trust to be sure you are taken care of financially.

Revocable living trusts are as they appear, revocable. You can also change (amend) the trust at any time, and you can move assets in and out of the trust. You, personally, are still liable for payment for income earned on trust held assets and you report those on your personal 1040/540 income tax forms. So, during your lifetime, the trust is, essentially, invisible.

Because of this “invisibility,” a run of the mill, revocable trust offers absolutely no protection from creditors or judgments from lawsuits. Some states offer “asset protection” trusts and, being a California resident, you can establish an asset protection trust. It normally involves working with a trust company in states like Alaska, South Dakota, Nevada and others that have established asset protection laws.

At this time, California does not have credit protection when using a revocable trust. Asset protection planning can be a bit more complicated, and the annual fees can make it daunting for those of us who do not necessarily need asset protection.

Protection of our assets can usually and more cheaply be accomplished by making sure we have the right insurance in place to cover any liabilities we may have for things like car accidents, or someone being bitten by our dog.

Professionals in a risky line of business can get errors and omissions insurance to help with possible lawsuit protection.

Now, asset protection for our children can be accomplished using a run of the mill California revocable trust and it goes like this: I set up my revocable trust, at my death it becomes irrevocable and I provide that my trustee sets up two trusts, one for each of my sons. These two trusts are a good form of asset protection for my sons. If they get sued or accrue a lot of debt, it is extremely difficult, if not impossible, for a creditor or judgment to attach the assets held in their trust. Similarly, the assets in the trust remain their separate property so if they were married and then divorced, the assets can be protected.

If we want to set up a California trust for asset protection, we can set up an irrevocable trust. We then “gift” our house and other assets to the trust and these assets are protected. We can still get income from the assets but, unfortunately, we do not have the same ability to amend the trust and move assets in and out of the trust. Once the assets go into the trust, they stay there.

The field of estate planning is deep and complex and so much can be accomplished by proper planning. I always recommend that everyone do some planning and, at a minimum, have a will and Advance Health Care Directive.

Your estate plan is dependent on what you are trying to accomplish so speak with an estate planning attorney to see what your best estate plan should be.

Liza Horvath has more than 30 years of experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. Questions? Email liza@montereytrust.com or call (831)646-5262