For companies operating on a smaller scale, the question of pursuing unpaid debts is a tricky one. For debtors with complex assets and estate plans, that task can be even more challenging to parse out.
Understanding the obstacles to creditors
It’s a common tactic that people drafting an estate will place a house into a revocable trust to protect that asset from the probate process. Though this living trust can effectively avoid the probate process, it may not protect that asset from efforts to collect a debt. Though the living trust is a legal entity, it is still in the original owner’s name, which puts them within the creditors’ reach. Creditors need to understand the difference between a revocable and irrevocable trust:
Revocable trust: This trust structure is also known as a living trust and allows for modifications during a person’s life. It will enable more flexibility for the creator and presents a greater opportunity for creditors to bypass the trust structure to collect a claim.
Irrevocable trust: The creator cannot terminate it or change it after its creation unless there is a court order or the beneficiaries agree to specific terms. This form of trust can produce numerous obstacles to creditors attempting to pursue claims after the trustee creator’s death. The assets placed in an irrevocable trust are no longer the trustor’s, which can prevent them from being accessed by creditors.
Pursuing your business interests
Finding payment for overdue debts is an essential aspect of running a company. There are legal recourses when a person fails to pay their debts. Company owners need to understand the nuances of this complicated subject to meet their business needs better.