Making a trust irrevocable does not, by itself, protect assets from creditors in Washington. Who creates the trust and who benefits from it can make a big difference. If you put your own assets into a trust for your own benefit, your creditors may still reach those assets. If someone else creates an irrevocable trust for you with a valid spendthrift provision, your creditors generally cannot reach the trust assets before they are paid to you, with some exceptions.
For Kent residents, this difference can matter when planning how to pass assets to family members or protect an inheritance.
When an irrevocable trust may protect assets
A spendthrift provision can limit a beneficiary’s ability to give away their interest in the trust. It can also keep many creditors from reaching trust assets before the trustee pays them to the beneficiary.
Several rules can affect this protection:
- Self-settled trusts: Under RCW 19.36.020, putting your own assets in a trust for your own use is not valid against your existing or future creditors. Washington law does not let a person use this type of trust to keep assets away from their creditors.
- Settlor-beneficiary rights: If you create a trust and also benefit from it, creditors can generally reach the largest amount the trustee could pay to or for you. A spendthrift clause does not give you full protection from your own creditors.
- Fraudulent transfers: Washington’s Uniform Voidable Transactions Act, found in chapter 19.40 RCW, can allow creditors to challenge certain transfers. This may apply when someone moves assets with the intent to keep them from creditors or does not receive fair value in return.
- Beneficiary distributions: Once money or property becomes due to a beneficiary, a creditor may have a better chance of reaching that payment.
These rules show why simply placing assets in an irrevocable trust does not guarantee protection.
Whose creditor is making the claim?
The type of creditor matters. A settlor’s creditor may challenge a trust created for the settlor’s own benefit. A beneficiary’s creditor generally faces more limits when a valid spendthrift provision protects the beneficiary’s interest. However, exceptions and rights to trust payments can affect what the creditor can reach.
A trustee’s personal creditor generally cannot take trust property just because the trustee manages it. The creditor may, however, be able to reach fees or other payments that belong to the trustee personally. Washington law also covers certain claims against trust property for debts linked to the trustee’s work in managing the trust.
Legal assistance can help you review the trust terms and the type of creditor claim to see which protections may apply.
The trust structure matters
An irrevocable trust may protect assets in some cases, but being irrevocable does not guarantee that result. The person who creates the trust, the people who benefit from it, the trust’s spendthrift terms and when assets move into the trust can all affect whether a creditor can reach them.