Should I gift my assets to someone else in order to protect them from creditors?

While gifting an asset outright to a spouse or other relative would clearly be fraudulent if a claim is known or reasonably foreseeable, it may also be foolish when no claim is imminent.  If you gift an asset to your spouse, and then your spouse later divorces you, your ex-spouse keeps the asset and you get nothing.  Likewise, your other relative would have no obligation to gift an asset back to you, or use the asset for your benefit, when you might want it back in the future.  Even the act of your spouse or relative gifting an asset back to you may serve as evidence the initial gift was made, in fact, to hinder or defraud a potential creditor.           

A gifted asset is also exposed to creditor claims against the spouse or relative.  For example, if your spouse is at fault in an auto accident, the asset you were trying to protect would be exposed to a potential new claim outside your control.  Also consider the possibility that your relative might later get divorced and the relative’s ex-spouse becomes entitled to one-half of an asset that was originally yours.    

The better approach is to rely on liability insurance, LLCs, and irrevocable trusts to protect assets.  For example, an irrevocable trust with spousal access provisions may be drafted to define your spouse as the person you are married to and not necessarily the person you were married to at the time the trust was established.  Similarly, an irrevocable trust for your children may be drafted to protect trust assets from creditors and ex-spouses of the children.