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Creditors can access your trust assets

As you begin to plan out the details of your estate administration documents, you may be considering how to handle existing debts that affect your estate. To avoid probate litigation after you have already established your will, it is a good idea to explore a variety of options for your debt. Be aware that many myths exist about sheltering your estate from the effects of your existing debts, many of which could affect your assets after your death.

You may have heard that creating a revocable living trust for your assets could protect them from creditors after your death. This is incorrect. Most of the trusts are created by an individual, also known as a grantor, who serves as the initial trustee. The trustee has the power to handle the assets just as he or she did before the trust was created. Florida law dictates, however, that the assets and property in a revocable trust are available to creditors' claims, even during the grantor's lifetime.

Even more disconcerting is the fact that other people's creditors could also access the property in the trust, even if the trust is irrevocable. That means that your beneficiaries' creditors could seek access to the assets and property contained in the trust, even after your death. This policy was designed specifically to prevent Floridians from hiding assets in trusts to prevent creditor access. When the amount set aside to pay creditors during probate is insufficient, creditors have full rights to reach into the trust to complete payment.

Interestingly, the creditors cannot file claims directly against the trust during probate. Rather, they must file a probate claim through the courts, with a personal representative pursuing payment through the trustee. If such a claim is not filed within two years' time, the debt is forfeited.

Source:  www.marconews.com, "It's the law: Creditors can reach revocable trusts" William Morris, Aug. 30, 2013

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