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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 41221
Experience:  Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
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If 3 people are named as the trustors, and another 3 as the

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If 3 people are named as the trustors, and another 3 as the beneficiries in a trust with a $100,000...what happens if one of the three trustors or one of the three trustees gets sued for a large amount? Is the $100k safe?

Same question, but a house worth $500k instead of $100k cash.

Thank you for your question. Thank you also for requesting me directly. Please allow me assist you this evening.

Generally if a trustee is sued for anything that is not trust related, then the trust is safe. Trustees are caretakers of the trust, they are not owners of the money, so the assets are generally safe.

A beneficiary may be a different story. Beneficiaries generally have no control over the trust but are entitled to funds based on certain conditions. If a beneficiary is sued, then her share of the estate may be intercepted by the judgment holder should a judgment take place, or if the beneficiary has the right to demand funds, the judgment holder could step into the shoes of the beneficiary and likewise demand those funds but sent over to him. The answer does not really change if the assets are money or a property, it is just with a property trustees may need to sell the home and convert into into assets if the trust so designates but a judgment holder or creditor cannot generally compel such behavior.

Good luck.

Customer: replied 3 years ago.

So in theory, wouldn't it be a solution to gain liability protection on the trust assets if there are multiple trustors and multiple beneficiaries?

Dan,

I am sorry but I do not quite understand as to what exactly you mean by 'liability protection' in this case. Let me illustrate. Let me call the 3 trustees A, B, and C, and the 3 beneficiaries X, Y, Z. If A, B, or C have issues with creditors, that does not affect the trust (so long as the issue is not trust related). But if X has a creditor issue, X's share of the trust could be intercepted if it is ever disbursed. Same with Y or Z. The trust can provide some liability protection if those assets are never dispersed but the judgment would still remain against that beneficiary.

Hope that clarifies.

Customer: replied 3 years ago.
Liability protection in regard to the assets in the trust being safe if there is a judgement against the grantors or trustees.

I fully understand that the trustees have no cash to gain or lose, and are irrelevant, so long as the issue is not trust related.

So lets make all 3 grantors A, B, C instead in a trust of $75,000 with beneficiaries still being X,Y,Z.

X,Y,Z have equal $25k share. A,B,C have pooled the $75,000 together in different amounts over a year.

If X is sued, in theory, can't A,B,C should reallocate X's share to Y and Z, or back to A,B,C?

If A is sued, isn't his contribution of $40k safe because its now commingled in the Trust? If not, in theory, can't he just let it disburse it to X,Y,Z before garnishment?

Dan,

There is some protection, but not all. Notice that I stated that if beneficiaries are able to demand funds, then the creditor would likewise obtain that same right. As for reallocation, it depends on whether the trust permits such removals. A trustee generally cannot sell or 'reallocate' funds if they re deemed to go to the beneficiary, so any removal of assets goes to the beneficiaries first. The schemes you are listing about reallocation is not really valid because trust assets are not split in terms of which beneficiary has what portion, it is likewise based on trust language. A beneficiary of the trust cannot generally lose her share of the trust based on reallocations. Commingling does not protect assets, remember that beneficiaries have a potential interest and creditors do not care where that trust asset came from, if it exists and the bene is entitled to it, they can pursue it.

Good luck.

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