Trusts and Your Creditors; Foiled Again?



Revocable trusts by themselves do not provide any protection to the assets of the trustmaker, either before or after death Additional assets protection is required as you fund the trust to gain this protection.

However, it should not be overlooked that a revocable trust can provide near-absolute asset protection to the beneficiaries of the trust after the trustmaker dies…

Have you heard the notion that revocable trusts do not provide asset protection? Well, this isn’t entirely true. Consider the case of Frank and Geryl Pearl, as reported in a recent Forbes article titled “Pearl — Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor.”  For residents of Virginia, we have the added advantage of having a unique form of asset protection during the lives of the Trustmaker.  However, only a few estate planning attorneys inform their clients of this protection.  We offer a series of seminars this month on how to achieve this level of asset protection.   

Essentially, the Pearl case illustrates the magic of a revocable trust. Frank, upon a cancer diagnosis, moved his business assets under a revocable trust, which meant that he was still effectively accountable for everything because the “revocable” trust was still under his control for all intents and purposes. Frank arranged for the bank to name him personally as guarantor to the business loans. Geryl was named beneficiary to the trust. When Frank died, the assets in the trust that were otherwise entirely accessible to the bank and other creditors passed over to Geryl and were completely inaccessible to the creditors. Poof! How did this happen? As summarized by Forbes:

“It should not be overlooked that a revocable trust can provide near-absolute asset protection to the beneficiaries of the trust after the [trustmaker] dies, so long as the trust is well-drafted, has only discretionary distribution, and a solid spendthrift clause. What is no protection for the [trustmaker] almost magically turns into fantastic protection for beneficiaries after the [trustmaker]’s death. A beneficiary’s interest is simply not acceptable by creditors except in the most extreme cases, such as unpaid child support or if the beneficiary commits a violent crime, etc.”

To learn more you can consult the Forbes article on the Pearl case, but you should also consult with competent legal counsel before relying on this case in your own planning.

Reference: Forbes (September 30, 2012) “Pearl — Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor

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Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.