How does a revocable living trust protect from creditors?
Upon a person’s death, the normal procedure is for the estate to go through the probate process. This is in order for the courts to validate the will, and also sort out a number of aspects. These include inviting creditors to file for claims against the estate for monies owed, paying creditors, paying taxes due by the decedent, and dealing with the disbursement of the remaining estate.
Probate can often be a time-consuming and costly affair, but you can avoid the probate process through a revocable living trust. This entails transferring ownership of your assets and property to the revocable trust during your lifetime. The trust would then assume ownership of these assets and the property transferred. Because it would then be owned by the trust upon your death, thus it would not be subject to the probate process.
Creditors are usually given a certain date by which they must file their claim for any monies due to them. If the claim is made within the time given and the claim is validated by the executor, then payment will be made from the estate or from the sale of estate property.
If you are looking to set up a revocable living trust in order to protect your assets and property from creditors upon your death, then there is bad news. The assets that you transfer to the revocable living trust will still be available to creditors, so they can make a claim against your assets. However, it will be more difficult for creditors to claim against your assets if they have been transferred to a revocable living trust than it would be for them to claim against assets and property that was going through probate. This is because creditors will have to lodge a petition with the courts for a charging order in order to access the revocable living trust.
Upon the death of the property or asset owner, the revocable trust generally becomes irrevocable. This conversion from revocable to irrevocable trust protects the assets and property held in the trust from being used as collateral by the beneficiaries of the trust. The trustees are the ones that have the ultimate control over the assets and property rather than the beneficiaries. Because the creditors cannot force assets and property from the trust to be handed over the beneficiaries, this goes some way toward protecting the property from creditors.
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