When creditors attack a living trust in California in order to reach the assets, they must strictly follow the rules and procedures outlined by the law and the courts. Failing to do so could make it impossible for creditors to collect on their claims. In some cases, the majority of the assets available to the creditor may be held in the trust. It is therefore crucial for creditors to file their claims properly. Similarly, trustees fighting a creditor claim should carefully consider whether a creditor filed its claim properly before immediately making payment.
Creditors Must Sue the Trustee Instead of a Trust:
One important step to pursuing a creditor claim in California is to name the proper party to the lawsuit. This is an easily overlooked but crucial aspect of filing a claim. The following is an overview of the principals that apply to creditor claims involving trusts assets:
- A trust is a legal relationship that exists between a trustor/grantor/settlor, the trustee, and one or more beneficiaries.
- A judgment against a trust will not be enforced because the trust itself is just a relationship. It is not a separate entity, does not itself hold title to property, and is not a judgment debtor.
- In order to obtain an enforceable judgment against the trust property, a creditor must sue the individual or entity that holds title to the trust property. That individual or entity is the trustee. In other words, the creditors must sue the trustee.
As such, if the trustee holds the trust’s assets, creditors trying to reach assets of the trust should name the trustee in their lawsuit. Naming the trust itself is ineffective. A judgment against a trust is likely worthless. For more information about the process for a creditor bringing a claim, we encourage you to view our article, “Trust Administration Creditors Claim Procedure.”
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Living Trust (noun):
A person or institution that is giving an asset, such as in a Will, Trust, or Deed.
AttorneyThe Grossman Law Firm, APC · 525 B Street, Suite 1500, San Diego, CA 92101 · (951) 523-8307