Why revocable living trusts do not protect assets

Full transcript

0:12 Many New Yorkers are surprised to learn that a revocable living trust provides zero asset protection from creditors. In this episode, I’ll explain why—and what revocable living trusts are actually designed to do under New York law.

0:31 My name is Max Dilendorf, founder of Dilendorf Law Firm in New York.

0:35 We help clients design revocable living trusts for real estate, digital assets, cryptocurrency, and other property as part of estate planning and broader asset protection strategies.

0:47 One of the most common misconceptions I see is the belief that a revocable living trust protects assets from creditors.

0:56 It does not. That’s not opinion—it’s black-letter New York law. Under New York Estates, Powers and Trusts Law section 7-3.1, “a disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” In plain English, if you create a trust for your own benefit—which is exactly what a revocable living trust is—your creditors can still reach those assets.

1:30 New York law is even more explicit. EPTL section 10-10.6 provides that when a creator retains the power to revoke a trust, the creator “remains the absolute owner of the property disposed of so far as the rights of his creditors or purchasers are concerned.” That power of revocation is the defining feature of a revocable living trust. Because you can revoke it and take the assets back, the law treats those assets as still yours.

2:05 New York courts have consistently confirmed this rule. In City Bank Farmers Trust Co. v Cannon, 291 NY 125, 133 (1943), New York Court of Appeals held: “A settlor who reserves absolute power of modification and revocation possesses all the powers of ownership and for many purposes is treated as the absolute owner of the property held in trust.” What does this mean in practice?

2:26 It means that transferring New York real estate, bank accounts, investment assets, or cryptocurrency into a revocable living trust does not protect those assets from creditors during your lifetime. That said, revocable living trusts are still powerful estate planning tools. When properly drafted and funded, they can provide Privacy, help Avoid probate in New York, Create estate tax efficiencies, and Protect assets for children or other beneficiaries after death, even though they do not protect assets for the creator during life. Because revocable living trusts do not provide creditor protection, effective planning often requires a broader strategy.

3:16 At Dilendorf Law Firm, we help clients across New York design revocable living trusts and comprehensive asset protection plans, which may include 1) Irrevocable trusts, 2) Domestic asset protection trusts, and, in appropriate cases, 3) Offshore structures Thank you for watching, and I’ll see you in the next episode.

A transcript of the recording, so it reads as speech rather than as prose. It explains the law in general terms and is not advice on your own situation, which turns on facts this video cannot know.