Can You Transfer Debt Into a Living Trust?

By Valerie Stevens

A living trust is an agreement in which you transfer your assets into the ownership of the trust. You can retain control of those assets by naming yourself as trustee until your death, at which time a successor trustee takes over and distributes your assets to your beneficiaries. While you cannot transfer debt into a living trust, creditors might be able to reach the assets in the trust during your lifetime and after your death.

Creditor Access

Whether or not your creditors may be able to access your trust assets depends on your level of involvement in the trust's management. If you named yourself as trustee of your living trust, while you retain control of the assets, you have little protection from creditors. Upon your death, your successor trustee may be responsible for paying your debts before distributing the trust assets. If you owe more than the value of the trust assets, your beneficiaries may get nothing from the trust.

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Requirements for a Irrevocable Family Trust Agreement
 

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Living Trust Guidelines

A living trust is a way of managing assets, a tool used primarily in estate planning. It offers a number of advantages over a last will and testament, including greater flexibility in the management and distribution of your assets. Living trusts are governed by state laws and these laws differ slightly from state to state.

What Assets to Put in a Living Trust?

The greatest advantage to establishing a living trust is that it avoids having your assets pass through probate when you die. Another plus exists if your beneficiaries are not especially frugal or haven’t yet reached the age of majority. Your trust can distribute their bequests in installments or when they reach a certain age. Before these things can work in your favor, however, you must fund the trust by transferring your assets into it.

How to Prepare a Living Trust at Home

A living trust allows you to place assets under the care of a trustee who then distributes the assets to the beneficiaries of your choosing, in accordance with the terms you've set forth in your trust document. A living trust is often used to protect assets from the expense and delays of the probate process. A revocable trust is taxed as the grantor's personal assets, while an irrevocable trust is taxed as an independent legal entity. You may establish a living trust by executing a trust document and placing assets into the trust. Although it is best to retain an attorney to draft the living trust, it is possible to draft it yourself with the aid of an online legal document provider.

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