Why LLCs and land trusts do not protect your assets.

By Tresp, Day & Associates · April 19, 2024

Limited Liability Companies (LLCs) and land trusts (or other revocable living trusts) are often treated as essential tools for organizing your financial affairs and safeguarding assets. They are important, but it is a costly mistake to assume they provide asset protection on their own. Here are the limitations, and why relying on them alone can leave you exposed.

Living trusts avoid probate, they do not protect assets

A revocable living trust, such as a land trust, is the main tool for avoiding probate court and the judicial oversight that comes with it when you pass away. Its job is the orderly transfer of assets to your heirs, not shielding those assets from threats during your lifetime. Titling assets into a revocable living trust does not provide creditor protection. If you are sued, assets in your revocable living trust have no more protection than assets held in your own name.

The illusion of the LLC

LLCs are used to limit liability from lawsuits and creditors, and they do that job for business liability. But the protection is limited and can be negated by a court. If an LLC is not maintained properly, or is treated as an extension of the individual, a creditor may “pierce the veil” and reach personal assets. And a single-member LLC in many states offers weak charging-order protection, so the assets inside the LLC can be exposed. The belief that an LLC is an impenetrable shield is exactly what leaves people unprotected. (This is also why the state you choose matters, see where not to incorporate and Wyoming.)

What actually protects assets: irrevocable trusts

To address the limits of revocable trusts and LLCs, you need vehicles built for protection: irrevocable trusts with robust asset-protection features, domestic or offshore. By placing assets beyond your immediate control, a properly drafted and funded irrevocable trust puts them beyond the easy reach of future creditors as well. Tresp, Day & Associates has structured these plans since 1992, and our structures have been tested in court, because Principal Attorney Elizabeth A. Tresp litigates trust and estate disputes, not just drafts documents.