Will a Trust Protect from Creditor Claims?
A trust is not an effective means of protecting one’s property from creditor claims.
Some have suggested that, since a trust is distinct from the person who created the trust (just as a corporation is not the same as the person who created the corporation), subsequent creditor claims against the person who created the trust cannot be satisfied from the property placed into the name of that trust.
While we all would like for there to be a magic black box that would protect us from our own creditors, a Living Trust or Family Trust is not that magic box.
In reality, a judge who awards a judgment to a creditor will waste no time in ordering the debtor who created the trust to simply empty the contents of the trust and move ownership back into the debtor’s name so that the judgment can be satisfied.
All of this reflects the expectation of our judicial system that a person who owes a debt will pay that debt from any assets that he or she owns or controls. And that includes property sequestered in a trust of that person’s own making.