How can I collect if all of the debtor’s assets are in a trust?

How can I collect if all of the debtor’s assets are in a trust?

On Behalf of | Oct 13, 2021 | Collections

Debtors have tried everything under the sun to try to hide and protect their assets from the people that they owe money to. Most of these methods fail – such as when they try to give away assets to avoid collection. Other times, the situation becomes a bit more complex, such as when the debtor’s assets are all in the name of a trust rather than in their own name. If this is your case, can you still collect your debt from them?

Revocable vs irrevocable trusts

The process you will have to take depends largely upon an important detail – the type of trust that your debtor’s assets are in. While there are many different types of trusts, the two categories that are relevant for debt collection are revocable trusts and irrevocable trusts.

As the names imply, your debtor can revoke or modify a revocable trust at any time during their life, while an irrevocable trust is out of their immediate control.

Every trust needs a grantor (the person who creates the trust), a beneficiary (the person or people whom the trust benefits), and a trustee (the person who administers the trust and can make legal decisions regarding its contents).

In most cases, in a revocable trust the grantor and trustee are the same person, and the beneficiary may also be that same person as well. In other words, your debtor may have moved their assets into a trust that they created and that they manage for their own benefit. If this is the case, then you should have little trouble recovering what they owe you. With a proper court order after you win your judgment, your debtor will have to repay you out of the contents of their trust.

If your debtor has an irrevocable trust, things get a bit more complicated. Since they cannot be the trustee of their own irrevocable trust, they have no legal authority to access the assets in the trust, even if they are the beneficiary. They are literally no longer the owners of the property, and they have no control over it.

Thus, unless you are somehow able to bring their trustee into your lawsuit (e.g. fraudulent transfer lawsuit), the assets will unfortunately likely be out of your reach as well – until they are paid to the debtor out of the trust.

You should receive what you are owed

It’s incredibly frustrating when debtors resort to drastic measures to keep their assets out of the hands of their creditors. Luckily, except for in extreme circumstances, there is usually a legal method to pursue that will allow you to reach the assets that they are trying to hide from you.