Thoughts on Estate Planning Trusts and Asset Protection By An Old Banker’s Attorney

I don’t usually comment on estate planning matters but a recent Court of Appeals decision on involving an estate planning trust caught my interest. The bank obtained a judgment against an individual based on a personal guaranty. The bank garnished an account that the individual held as trustee under a trust agreement.

First, it appears that the individual thought her estate planning trust assets were sheltered from creditors. They were not. This underscores the critical need to discuss the purpose of the trust with an attorney when the trust is established. If the goal is to shelter assets from creditors (perhaps to meet minimum living needs or make them available for beneficiaries) it is crucial that appropriate steps are taken to accomplish that result. Simply creating a trust with the same person as the trustee often will not do the trick.

Secondly, this litigation reminds us how important it is to seek good advice for estate planning, just to make sure that you do not inadvertently change exempt assets into nonexempt assets.

Thirdly, it was interesting to note that the creditor was not required to prove the nature of the trust or establish facts that would allow the creditor to reach the trust assets. Usually the creditor must provide proof that the account is owned by the judgment debtor. Here, the Court noted that the judgment debtor failed to provide proof that these assets were not owned by her.

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