Can Creating a Trust Protect Certain Assets From Bankruptcy?

If you are someone who is ready to begin creating your estate plan, or you have already begun the estate planning process, there is a very good chance that you are familiar with some of the basics, such as creating a will. That being said, another key part of any comprehensive estate plan is creating one or more trusts. Trusts come with multiple benefits, both for you and your family. However, you may be wondering whether assets placed into trusts will be protected from collection activities, should you or the beneficiary you name incur a significant amount of debt. This a very good question, and our firm is here to answer it. Please continue reading and speak with our knowledgeable Pennsylvania estate planning attorneys to learn more about trusts and how they may be affected by a bankruptcy filing. Here are some of the questions you may have:

How are revocable trusts and irrevocable trusts different?

Before we get into whether your trust will be protected from a bankruptcy filing or not, you should first have an understanding of the key differences between revocable and irrevocable trusts. To start, a revocable trust allows the grantor of that trust to remain in control of that trust until he or she passes away. Once the grantor passes away, the assets will be transferred over to the beneficiary’s ownership. That being said, if you create an irrevocable trust, the beneficiaries of that trust will obtain legal ownership of assets included in that trust, and you will essentially relinquish ownership of those assets while you are still alive.

The benefit of creating an irrevocable trust, in terms of filing for bankruptcy, is that in certain cases, you may create something known as a “spendthrift provision” to that trust, which may protect assets in that trust from collection activities by creditors, should the beneficiary of the trust ever file for bankruptcy. The bottom line is that there are certain cases in which trusts may be exempt from bankruptcy, and it is your job to speak with an experienced attorney who can determine this on your behalf.

Benefits of Creating Trusts in Pennsylvania

Some of the benefits of creating an irrevocable trust in Pennsylvania are as follows:

  • Asset protection
  • Charitable estate planning
  • Estate tax reduction

There are also various benefits of creating a revocable trust, including the following:

  • They allow you to plan for potential mental incapacitation
  • They help your family avoid the probate process
  • They can help you protect your privacy

If you have any additional questions, give our knowledgeable Pennsylvania estate planning attorneys a call today. We are always here to help.


Friedman Schuman is an experienced and dedicated legal resource for clients throughout Pennsylvania. We proudly serve clients facing a wide range of legal matters. If you require the services of an effective attorney, please contact Friedman Schuman today to schedule a consultation.

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