Can A Trust Protect Your Estate From Creditors?

On Behalf of Ezell Law Firm, LLC

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May 13, 2024

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Estate Planning

One reason you create an estate plan is to ensure your assets are distributed to your heirs and legatees according to your wishes. However, without proper planning, your loved ones may receive less than you intended.

The IRS, creditors and other entities may claim a substantial portion of your estate unless you take preventative steps.

The succession process

Louisiana has a unique legal system that blends traditions from France and Spain. The succession process is essential for settling the deceased’s debts, transferring their assets to their heirs or legatees and finalizing their legal affairs.

After a petition for probate is filed in the parish where the decedent lived, the court will appoint an executor or administrator to manage the estate through the succession process. This person is responsible for creating an inventory of the estate’s assets and having an appraiser determine their value.

However, before the assets can be distributed as outlined in the will, creditors must be notified and allowed to submit claims against the estate.

A trust can be used in estate planning for asset protection. There are generally two types of trusts:

1. Revocable trusts allow the grantor (the person who creates the trust) to retain control over the assets during their lifetime. The grantor can alter, amend or revoke the trust at any time. Revocable trusts offer flexibility but offer limited protection against creditors. Since the grantor maintains control over the trust assets, those assets are generally considered part of the grantor’s estate and may be accessible to creditors.

2. Irrevocable trusts transfer ownership of the grantor’s assets to the trust permanently. Once an irrevocable trust is established, the grantor cannot modify or revoke the trust without the beneficiaries’ consent. Since the grantor has no control over the assets, they are no longer considered part of the estate and can provide greater protection against creditors.

Still, it’s crucial to have guidance when establishing trusts because their timing and intent can be scrutinized under Louisiana’s laws regarding fraudulent transfers.