[WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

Tue Jul 21 09:40:57 PDT 2020

Diane,

Yes, your understanding, and explanation with cites matches my understanding. The confusion was more about how general estate assets could be protected from creditors simply by transferring them to a testamentary trust. I see no basis in the law for that position.

Heather

Heather S. de Vrieze
Attorney-at-Law
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Diane J. Kiepe
Sent: Tuesday, July 21, 2020 9:07 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

Heather,

In particular, if life insurance is payable to the estate by the insured (at times a contract default when a beneficiary is not named or worse yet actually named by insured), it becomes an asset of the estate able to satisfy estate claims.  If it is made payable to the Trustee of the trust created under Last Will and Testament it maintains it status as what I would called a “preferred asset” and is not able to be reached due to the preference of insurance proceeds being protected under statute.  48.18.410.

481.18.400(2) says the protection can’t be defeated if paid to an estate if the beneficiary, assignee or payee hall predecease such person in certain circumstances but this is different then naming the estate outright.

This is similar to qualified plans too if the beneficiary designation is not drafted properly.  Annuities that survive a decedent have some possible protection too if the beneficiary is set up to not be the estate.

These are the only two assets I can think of (at lease off the cuff) that get special treatment due to other laws outside of probate.  As to all other assets, you are correct that testamentary trusts are funded after rightful creditors of the estate  are paid.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Heather de Vrieze
Sent: Tuesday, July 21, 2020 8:45 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

I’m confused. How is a testamentary trust, as beneficiary of an estate any different than say an adult child or friend.

If I give my son my estate, the estate must settle creditor claims prior to distribution of the remaining assets to my son.

If I instead give the estate to my trustee, of the testamentary trust for my son, how could that possibly shelter the estate from creditor claims?

Am I missing some key bit of estate law? I understand that sending life insurance or qualified retirement assets (which have statutory protection from creditors when they do not pass through the estate) to the trust as beneficiary, the estate creditors cannot collect against those assets, but how could a testamentary trust possibly protect assets passing through the estate from creditors of the estate?

Heather

Heather S. de Vrieze
Attorney-at-Law
[cid:image001.jpg at 01D65F43.07AB6950]
3909 California Avenue SW
Seattle, WA 98116-3705
(206)938-5500
heatherd at westseattlelaw.com<mailto:heatherd at westseattlelaw.com>
www.westseattlelaw.com<http://www.westseattlelaw.com/>
Click here to connect with de Vrieze | Carney on Facebook:   [FB Logo] <https://www.facebook.com/DeVriezeCarney>

For the latest information regarding firm operations and to see precautions we are taking in light of the Coronavirus crisis please visit our firm’s website, www.WestSeattleLaw.com<http://www.WestSeattleLaw.com>.
If I am sick, I will stay home, I ask you to do the same.

CONFIDENTIAL & PRIVILEGED. This e-mail message may contain legally privileged and/or confidential information.  If you have received this e-mail in error, please notify the sender immediately and delete all copies of this e-mail message and any attachment.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Dalynne Singleton
Sent: Tuesday, July 21, 2020 7:41 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

This is interesting.  I have a similar issues.  A creditor’s claim filed timely in a probate.  All assets were placed into a non-revocable testamentary trust upon the death of the decedent.
So, the estate really has no assets but the trust document clearly provides that creditors are to be paid upon death.    The creditor’s claim was rejected and there is tort litigation pending with possible insurance to pay the claims.
BUT, the issues will be (1) if there is not enough insurance to cover the claims, then will the estate be able to take back some of the trust assets to pay the claim; and (2) protecting the trust assets from being distributed before the creditor claims is resolved and paid, or not.  Trustee is selling assets and home for the trust.

Time for a motion in probate court to protect the trust assets up to the value of the creditor’s claim.

Dalynne Singleton
Gourley Law Group
Snohomish Escrow
The Exchange Connection
1002 10th Street / PO Box 1091
Snohomish, WA 98291
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360.568.8092  fax
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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Diane J. Kiepe
Sent: Monday, July 20, 2020 4:19 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

Hello Michael,

Your client is right to be concerned and  this issue can become problematic.  First of all, if it is placed in the trust after death by say beneficiary designation, certain creditor protection is, in fact loss.  I see this issue is particularly worthy of review with life insurance proceeds and qualified plans.  I always advise that the general master trust should not be named for these assets.

Remember Revocable Living trust are simply probate avoidance devices and the general rule of thumb is, if an asset were subject to the decedent’s claims at the moment before death, death does not change that, with the exception of very few assets.  See RCW 11.18.200€.

I have taken position that if made payable to a subtrust in a living trust, it is only payable for a decedent’s estate if there are other insufficient trust assets and not otherwise excepted.  So, for example, I have made qualified plans and life insurance payable to a decedent’s by-pass type trust under a living trust.

Just my 2 cents.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of msafren at jennylinglaw.com<mailto:msafren at jennylinglaw.com>
Sent: Monday, July 20, 2020 4:03 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] Can Creditors Access Assets Placed into a Revocable Living Trust after the settlor's Death

Hello Learned Listservers,

I had a question for you all regarding creditor’s ability to access assets that were placed into a revocable living trust after the settlor’s death.  I’m unclear if the creditor has such an ability and if so the extent of the creditor’s ability to force the sale of assets transferred into the trust to satisfy the creditor’s claims.

To be clear, these are not secured creditors, but rather potential unsecured creditors and assume that creditors file their claims timely.

I could find nothing clearly answering this question one way or the other.  RCW 19.36.020 states “That all deeds of gift, all conveyances, and all transfers or assignments, verbal or written, of goods, chattels or things in action, made in trust for the use of the person making the same, shall be void as against the existing or subsequent creditors of such person.”  However, once a settlor dies and successor beneficiary and successor trustee appears, I imagine that RCW 19.36.020 would not longer apply.

I’ve got a client and this question is of great concern to my client. Please let me know your thoughts and the reasons for your opinions.

Warmest regards,

Michael S. Safren, Esq.
Attorney at Law

14900 Interurban Ave. S., Ste. 280 | Seattle, WA 98168
11900 NE 1st St., Bldg. G - Ste. 300 |  Bellevue, WA 98005
P: (206) 859-5098 | E: msafren at jennylinglaw.com<mailto:msafren at jennylinglaw.com>
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