Can Creditors Force a Sale on a House in Trust?
When a person creates a trust, he usually does so with the intent that the property he places in the trust will benefit the people he names as beneficiaries. More often than not, those beneficiaries are the person’s family members who will lose support once the person dies. The person who creates the trust definitely does not do so with the intent of the property benefiting his creditors, but sometimes creditors can reach the property of the trust.
Other People Are Reading
-
Trust Creation
-
A settlor is a person who creates a trust. In order for a trust to be created, the settlor must name the res, the beneficiaries and the trustee. The res is the property that the settlor places in the trust. The beneficiaries are those people who will receive property or money from the trust, and the trustee is the person who manages the trust.
Trust Types
-
A settlor may create one of two basic types of trusts: a revocable trust or an irrevocable trust. If the settlor creates a revocable trust he has the option of changing or terminating the trust at any time. If the settlor creates an irrevocable trust, he cannot change or revoke the trust. Generally, once the settlor creates an irrevocable trust, the property in the trust belongs to the designated beneficiaries and not the settlor.
-
Creditors and Trusts
-
The fact that the settlor can change a revocable trust by removing property from the trust means that creditors can reach that property. The property placed in an irrevocable trust is generally out of reach of creditors. Therefore, if the settlor has placed money in a revocable trust but owes money to a creditor, the creditor can reach that money. On the other hand, the creditor could not reach the money within an irrevocable trust unless the settlor owed the creditor money before placing the property in the trust.
House in Trust
-
When a person owes a creditor money, the creditor can file a civil lawsuit and receive a judgment against the person who owes money. If the person still does not pay the creditor, the creditor can take further action by going after the property that the person owns. For example, if the person owns a house, the creditor could attach the house. If the house is in a revocable trust or if the settlor placed the house in the trust, after the judgment was rendered, the creditor could still reach the house. Therefore, a creditor could possibly force the sale of a house in a trust, but it would depend on certain variables, such as: the type of debt owed, the value of the house and whether the house is a primary residence.
-
