Is My Revocable Trust Liable for My Personal Debts?

A trust is a vehicle for disposing of your assets without the need for probate after you die. It is, at least in the case of revocable trusts, not a mechanism to shield your assets from creditors. The reason for this is simple: As long as you have the power to revoke the trust, you effectively maintain control over the trust’s assets.

But what happens after you die? Can your creditors sue your trust if you owed them money prior to your death? The short answer is no. Under Florida law, creditors cannot maintain a “direct action against a trust.” Your creditors need to file a claim against your probate estate. And if your probate estate lacks sufficient assets to pay the creditor, the estate must then “obtain payment” from the trust.

And yes, your trust is legally liable to your probate estate for any “expenses of the administration and obligations of the decedent’s estate.” So you cannot place all of your assets into a revocable trust, leave your probate estate with nothing, and assume that will thwart your creditors. It simply doesn’t work that way.

Court Rejects Wrongful Death Lawsuit Against Deceased Driver’s Trust

This is one reason, among many, why you still need to have a will for your probate estate even if you separately create a trust. A related reason is that someone may pursue a claim against you after your death. It is the responsibility of your estate, not your trust, to defend against such claims.

Here is an example of what we mean. In a recent case, Feketa v. Zacharzewski, a federal judge in Miami dismissed a wrongful death lawsuit brought against a trust. This case arose from a two-car accident. The estates of the victims sued the trust of another victim who allegedly caused the accident.

The judge dismissed the trust as a defendant because the plaintiffs’ complaint failed to explain how “the trust was negligent or somehow responsible for [the settlor’s] driving.” The court noted that while the vehicle itself might have been a trust asset, there was nothing in Florida law that said “auto negligence claims may be brought against the Trustee.” And in any event, a trustee cannot be held liable for the acts of the trust’s settlor.

As discussed above, the proper remedy for a creditor is to file a claim against the debtor’s estate. But the judge noted even that would be premature here. Indeed, the plaintiffs have not yet established the deceased driver’s liability, therefore they are simply potential creditors of the estate.

Speak With a Florida Trust & Estate Attorney Today

In establishing and administering a trust, it is important to understand how the law applies to subjects like dealing with purported creditor claims. An experienced Fort Myers estate planning attorney can provide valuable assistance. Contact the Kuhn Law Firm, P.A., at 239-333-4529 today if you need help with a trust or any related matter.

Source:

scholar.google.com/scholar_case?case=3372088961025340504