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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Estate Law
Satisfied Customers: 118237
Experience:  Experienced in Trust and Succession Law, including Louisiana Laws
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Can my creditors take money out of a living trust that was

Customer Question

Can my creditors take money out of a living trust that was set up for me once the Grantor of the trust has died? I have a judgment from a creditor against me and am afraid they will take money out of the account when I set it up. I have an EIN and everything else I need to open the trust account. My mother (the Grantor of the trust) has died and I have a check in the name of her trust that I have to deposit into a trust account that I create. I am the sole beneficiary and successor trustee. I want to make sure that once I create the trust account, no creditor can take money. I have two money market accounts in my name (which I have had for over a year) from which nothing has been taken, which I hope is a good sign.
Submitted: 5 years ago.
Category: Estate Law
Expert:  Damien Bosco replied 5 years ago.
Welcome. This site allows for a general response that will help you with your legal issue. If necessary, for specific advice contact a local attorney. I am happy to help you. If I understand you correctly, you are a trustee and beneficiary of a trust for yourself that your mother created for you. You are concerned that once you open the trust account with moneys from your mother that your creditors will be able to invade it. A trust provision that protects from such a situation is a spendthrift clause. Most irrevocable trust have this provision. A spendthrift provision in an irrevocable trust prevents creditors from invading the trust property before it is actually distributed to the beneficiary. Most well drafted irrevocable trusts contain spendthrift provisions because such provisions protects the trust and the beneficiary in the event a beneficiary is sued and a judgment creditor attempts to attach the beneficiary's interest in the trust. The protection of the spendthrift trust extends solely to the property that is in the trust. Once the property has been distributed to the beneficiary that property can be reached by a creditor, except to the extent the distributed property is used to support the beneficiary. However, if a trust calls for a distribution to the beneficiary, but the beneficiary refuses such distribution and elects to retain property in the trust, the spendthrift protection of the trust ceases with respect to that distribution and the beneficiary’s creditors can now reach trust assets. An example of spendthrift language is as follows:

 

All payments may be made to the respective beneficiaries or, at their direction, may be deposited in any bank in any account carried in his or her name alone or with others. Such payments shall not be transferable by the voluntary or involuntary acts of any beneficiaries or by operation of law and shall not be subject to any obligation of any beneficiary.

Or something like this:

After any of the Trusts created herein becomes irrevocable, the interest of each beneficiary in income and principal shall be free from the control or interference of any creditor of such beneficiary or the spouse of a married beneficiary, or the parent of a child beneficiary, and shall not be subject to attachment or be subject to assignment either voluntarily or involuntarily.

So it is best to check the terms of the trust for a spendthrift provision. Note again, this site is for general information and cannot comment on your particular trust but this general information should be helpful to you. If you need further clarification, hit the reply button and let me know. Thank you.

 

Customer: replied 5 years ago.
I'm not worried about my mother's creditors; they have all been paid off. I am concerned about MY creditors. The trust is now irrevocable (since my mom is dead). I have a check made out to the trust. I have to open a trust account somewhere so I can deposit it (I already have an EIN for it). Since I am the trustee (and therefore must have my SSN on record for the bank), do my creditors have the right to go into the account and take the money? The terms of the trust say that the trustee (me) shall distribute all assets to me. After the distribution, the trust shall terminate. I have a civil judgment against me for about $8000 (credit card debt), and a few debt collection agencies nagging me. Is the money safe as long as it's in the trust? After all, it has its own EIN. Do I have to write a check to myself in order to get it or can I simply write a check to my sister and have her deposit it in her account so no creditors can get to it? As far as I know, any bank accounts I have are not hampered by writs of execution, since I have kept money in the accounts without them being drained. To summarize, I need to know if I can open the required trust account, put the money in, and have it be safe from MY creditors. I also need to know how I can distribute it to myself without risk. Thank you.
Expert:  Law Educator, Esq. replied 5 years ago.
Your previous expert has opted out, but the principle he explained is the same for any grantor or beneficiary of the irrevocable trust. An irrevocable trust cannot be attacked by your creditors AS LONG AS THE MONEY STAYS IN THE TRUST. Once the money comes out of the trust and goes to you personally, they can seize it. If the money stays in the trust accounts and the trust pays your bills directly from the trust, then the money never comes into your personal possession and as such the creditors cannot seize it.


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Expert:  Law Educator, Esq. replied 5 years ago.
I am sorry that you expected more, but that is the law and we cannot change what the law is and all of your questions were answered. As you have chosen to leave negative feedback for something that is not the fault of the expert, I can no longer assist you and we wish you all the best.