Creditor Claims

• When a person places assets into a trust, he is referred to as the grantor. The grantor has the right to use all assets in a revocable living trust. In fact, he can take back all assets, change beneficiaries and cancel the trust altogether if he wishes while the trust is still designated as revocable. Because the grantor has access to all assets and can take them back at any time, those assets are still deemed part of his personal estate and subject to creditor claims.
  
  

Trusts to Avoid Creditors

• An irrevocable trust removes assets from a grantor's estate and eliminates his control over the assets. In general, an irrevocable trust is not subject to a creditor's claims. However, a person who opens an irrevocable trust in fear of being sued or as a method to avoid judgment claims is fraudulently granting assets. Creditors can make claims on these types of trusts if they can prove that the timing of the trust funding coincided with the creditor's claim.
  
  

Upon Death

• There is no deadline for creditors to make a claim against you or your estate if you have a trust. This is a disadvantage of a trust over a will going through probate. Most states place a statute of limitations of one to three years for all creditors. A trust has its own tax identification number that can be sued long after the grantor dies. In fact, if trust assets are distributed to beneficiaries and a creditor lays claim on those assets years after the grantor's death, the creditor can sue the beneficiaries. Whether the creditor wins and how much is up to his case and court decisions. The point is beneficiaries are not exempt.
  
  

Considerations

• Before establishing a last will and testament or a trust, consult a financial planner or estate planning attorney who can direct you to the best option for your personal situation. Don't use a trust to try to avoid creditors. This holds true for your lifetime as the grantor and after you die.