Or: Will you please stop listening to these guys? Many of you have seen the ads touting the significant benefits of living trusts. Invariably, one of the great features mentioned is the ability of these trusts to protect your assets.

While living trusts do offer certain advantages it is very important to clearly recognize the one benefit they do not offer: asset protection. Let’s take a closer look. Primarily used for estate planning, the key benefit of a living trust is to avoid probate. If you have only a will, or pass without a will, the distribution of your estate is supervised by a local probate court. The probate process is long and time consuming and a matter of public record, meaning that anyone can view the file to see what assets are involved, and perhaps challenge the distribution.

As well, the attorney’s fees awarded for probate proceedings can be quite lu­crative for the lawyers involved. For example, with a $1 million primary resi_­dence passing through a California probate, the court awards a statutorily set attorney’s fee of $23,000. An executor is entitled to the same amount. These fees are due, even if the home is fully encumbered by loans, and thus without equity to pay the fees.

The solution is to set up a living trust, which is a trust document allowing you to use an appointed trustee, typically a surviving spouse or other family member, to distribute your assets without the need for probate court assistance or review. The several thousand dollars spent on a living trust can easily save many more thousands of dollars in probate fees.

The living trust also features a great deal of flexibility. It is a revocable trust, meaning you can change its terms and/or benefici­aries at any time. But that also means it does not offer any asset protection. Because it can be easily altered, a judgment creditor can get a court order forcing a transfer of any property from the trust to the litigation party.

Despite this factual lack of asset protec­tion, living trust promoters continue to sell their services as offering such protection.

When challenged, they will parse and narrow their overly broad claims to suggest that their living trusts help protect against creditor claims because they avoid the very public probate process. And this is true. But just as deciding not to sunbathe completely in the nude is not the same as the judicious use of-sun­screen, avoiding a fully public probate is not the same as proper asset protection. By relying only on the former examples, you are going to get burned.

The next question clients always have is: How do they combine the benefit of a living trust’s probate avoidance with the necessity of asset protection? The an­swer is simple.  The LLC is on title with the county recorder as owning the fourplex. We have asset protection at this level. The living trust owns the membership interests in XYZ, LLC. If both Mario and Carmen die, the living trust document will dictate who owns the LLC without the need for court supervision. At this level we have probate avoidance.

Properly structured LLCs and living trusts work well together and comple­ment each other. You can’t rely on the LLC for probate avoidance, and you can never count on the living trust for asset protection, but in concert you can get both.