Creditor Implications of a Revocable Life Trust

It is a delusion to think that a client protects himself or his beneficiaries from creditors by placing assets in a revocable trust. The avoidance of probate does not equate to the avoidance of creditor implications. Creditors clearly have access to the assets in a revocable life insurance trust until and unless the client dies or for some other reason the trust becomes irrevocable. All states currently allow creditors access to any asset the client can revoke or liberally amend. Furthermore, in the world of creditor implications, where creditors of an estate generally have a very short period of time to press their claims (four to six months in many jurisdictions), creditors of a trust have no such abbreviated deadline and can file suits even years after the grantor’s death as long as the time is within the statute of limitations (as long as six or seven years in some states).

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Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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