Can a Lien Be Put Against a Living Trust?

By Karyn Maier

A living trust is created to keep the contents of a will private or to guard against the mishandling of funds intended for specific recipients at a future date. This instrument also allows you to pass property and other interests to beneficiaries without the need for probate, which can save time and expenses for the people concerned. Although a lien cannot affect a living trust as an intangible entity, a lien is usually enforceable against the assets it transfers.

A living trust is created to keep the contents of a will private or to guard against the mishandling of funds intended for specific recipients at a future date. This instrument also allows you to pass property and other interests to beneficiaries without the need for probate, which can save time and expenses for the people concerned. Although a lien cannot affect a living trust as an intangible entity, a lien is usually enforceable against the assets it transfers.

Description

When you establish a trust inter vivos, it means that you are declaring by legal instrument to grant, or transfer, your property to a trustee while you are still living. In other words, it is a legal contract that becomes effective immediately. This contrasts with a last will and testament that directs an executor to possess and distribute your property after your death. One of the primary reasons for creating a living trust is to avoid probate proceedings, even when there is property existing in different states.

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Asset Protection

It is a common misconception that a living trust automatically protects assets from a judgment or lien. Generally, all of the property transferred in a living trust is still the property of the person making the declaration of trust unless the transfer constitutes a sale. Most people appoint themselves as trustee to retain control of the trust assets during their lifetime. This means the trust is revocable and can be changed at the discretion of the grantor as trustee at any time. As such, the property is subject to seizure as the result of a lien if a court awards a judgment against the grantor of the trust. However, the lien only attaches to the grantor’s share.

Liens against Beneficiaries

Assets placed in a living trust are not protected from a lien placed against a beneficiary of that trust. However, the trustee is not obliged to make a premature distribution of assets to the beneficiary to satisfy a judgment. In addition, a creditor can only attach a lien against the beneficiary’s interest in the trust.

Sale of Assets

It may be possible to protect certain assets in a trust from a lien if they are sold to or placed in a limited liability corporation, or LLC, that is owned by the trust and not the grantor or trustee. Depending on the type of property, however, this may not be advantageous. For example, the sale or transfer of real property that is subject to a mortgage will usually accelerate demand to satisfy full payment of the note at the time of the sale.

Considerations

Despite attempts to introduce legal consistency between states regarding trust law under the Uniform Trust Code, or UTC, not all states have adopted it and those that have continue to incorporate their own statues. In short, trust laws may vary between states. If you have questions or concerns about how a lien might affect a living trust, consult a qualified attorney experienced in estate planning.

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The Difference Between a New Hampshire and a Florida Living Trust

References

Related articles

How Much Money Do You Need to Start a Living Trust?

A living trust is used for estate planning and acts as a holding area for property. The person who creates the trust can retain control over his property in a revocable living trust. A trust can be created for many purposes, including caring for a child or elderly person or avoiding probate, which can be a lengthy process. The terms of the trust dictate when the trust beneficiaries receive the property in the trust. A living trust can be revocable, which means it can be amended or terminated by the person who created the trust, or irrevocable, which means it can be amended or terminated under limited circumstances, if at all. A grantor -- the person who creates a trust -- gives up all control over property in an irrevocable trust, whereas the grantor retains control over property in a revocable trust.

Requirements for a Irrevocable Family Trust Agreement

An irrevocable trust is an arrangement whereby a grantor relinquishes legal ownership of property and places it under the administration of a trustee, who administers it for the benefit of the trust beneficiaries. A family trust is a trust in which the beneficiaries are all relatives of the grantor. A grantor creates a trust deed by drafting a deed of trust and signing it. A deed of trust does not require the agreement of trust beneficiaries.

Enforcing a Trust

A trust is a legal relationship in which a trustee holds property for beneficiaries, who are the individuals benefiting from the trust. The trustee must abide by the terms of the trust to manage property and distribute it to the beneficiaries. The person who creates a trust is known as the settlor, or grantor. The settlor can also serve as the trustee, naming a successor trustee who will take over for him following his death. Alternatively, the settlor can name someone else to serve as the trustee at the time he creates the trust. A trustee owes certain duties to the beneficiaries -- and the beneficiaries have a right to enforce the terms of the trust and hold the trustee in breach of his duties if he is performs any wrongful acts or omissions that affect their interests.

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