Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
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Generally, a beneficiary's interest in a trust can be property of the bankruptcy estate. However, a trust containing spendthrift provisions that make the beneficiary's interest in the trust non-transferable and non-alienable by the beneficiary's creditors can provide protection if the beneficiary files bankruptcy.
Thus, the answer about whether you're protected depends on the terms of your particular trust. If the proper precautions are taken, the bankruptcy code should honor the settelor's intentions and keep the debtor-beneficiary's interest in the trust from becoming property of the bankruptcy estate.
Before filing bankruptcy, I would suggest that you have a local attorney review the trust document to see whether there is a spendthrift or other provision that will protect your property if bankruptcy were filed. Trust beneficiaries should be careful, however. If the settler and beneficiaries are the same, the trust is self-settled, rendering spendthrift provisions unenforceable. Further, if the doctrine of merger applies (described above), the trust will cease to exist and negates the spendthrift protection