HomeAbout UsFAQsResourcesBankruptcy BlogContact Us
Southern California Law Advocates, P.C.
Contact Us
Name:
Email:
Phone:
Message:

Office Locations:

Riverside Office

11801 Pierce St.
Suite 200
Riverside, CA 92505
(951) 241-8070
Read More +

Temecula Office

41690 Enterprise Circle N.
Ste. 202
Temecula, CA 92590
(951) 294-5471
Read More +

Orange Office

2112 E. Fourth St.
Ste. 103
Santa Ana, CA 92705
(866) 337-7220
Read More +

Long Beach Office

3711 Long Beach Blvd.
Ste. 710
Long Beach, CA 90807
(562) 506-0016
Read More +

Los Angeles Office

515 S. Flower St.
36th Floor
Los Angeles, CA 90071
(213) 330-8999
Read More +

Are Revocable Trusts Protected in Bankruptcy?

Many people have opted to have a living trust created that provides for the distribution of their assets after their death. Most of the living trust that are created are revocable, meaning that they are subject to change. A revocable trust can the modified, altered, to change the assets that are in the trust and who the assets are distributed to. A revocable  trust names beneficiaries who will be entitled to a certain portion of the assets after the settlor's death (the creator of the trust). If  you are listed as a beneficiary of a living trust you may be worried whether filing for bankruptcy may put the assets in the trust at risk.

When you file for bankruptcy , your assets become part of a bankruptcy estate that can be used to pay creditors with. Each state has bankruptcy exemptions  that protects certain assets from being liquidated to pay creditors with. If you are a beneficiary of a living trust then you need to understand whether it will become part of the bankruptcy estate and whether it can be used to pay creditors with. If  trust is a revocable living trust at the time the bankruptcy case was filed then generally courts have ruled that the trust is not part of the bankruptcy estate where it contains a valid spendthrift provision. Section 541 (c)(2)of the bankruptcy code provides that " a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title".   What this means is that if you are a beneficiary of a revocable living trust with a valid spendthrift provision, then the trust is not part of the bankruptcy estate. A spendthrift trust  is a trust that prohibits the assets from being assigned, transferred or encumbered for the benefit of creditors before the asset is distributed to the beneficiary. If the revocable trust contains a provision  that is considered valid under your state then the trust assets do not become part of the bankruptcy estate.

If you are a considering filing for bankruptcy and are a beneficiary of a living trust it is important that you consult with an experienced bankruptcy attorney prior to filing. It is important that you aware of any potential risk that may allow the bankruptcy trustee to liquidate the trust assets for the benefit of creditors.

Comments

No Comments Posted

Southern California Bankruptcy Attorneys | Contact Us | Site Map | Privacy Policy

The information on this website is for general information purposes only. Nothing on this site should be taken as legal
advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.