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knort4

Do Trusts Pay Debt?

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A man wants his stepdaughter to inherit his $55,000 home, by putting it in a trust. His intention is to deliberately not make a will. The home has an outstanding balance of $15,000 due on the mortgage. He also owes $17,000 in credit card debt. If he pays off the mortgage and the home becomes his free and clear, will putting the home in a trust prevent the credit card company from filing a claim with the trust for payment of the credit card debt?

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His intention is to deliberately not make a will.

Why? It's fine to make a trust and use that as your primary estate planning device. However, folks who do that typically also create a pourover will that leaves anything not already in the trust to the trust.

If he pays off the mortgage and the home becomes his free and clear, will putting the home in a trust prevent the credit card company from filing a claim with the trust for payment of the credit card debt?

We have no way of knowing what might motivate some unknown credit card company to take or not take a particular action. If your real question is whether putting the house in the trust will insulate it from the credit card debt, the answer is most likely no. However, it depends on the laws of the unidentified state in which the home is located and, if different, the state in which the man lives at the time of his death. It will also depend on the nature and specific terms of the trust.

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You can't expect a typical (revocable) trust to defeat the claims of a creditor. If he wants to set up an irrevocable trust where he's no longer the effective owner/controller of the asset, maybe. But I'd be careful there, because this person shouldn't presume that he won't need the equity in that home for his own use.

Can't expect us to know what a creditor will or won't do, but if I were the creditor, I wouldn't decide let go that debt if there were assets to cover it.

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Trusts are estate-planning tools that can help you manage property during life while ensuring a smooth transition of affairs after death. You may visit the Estate Planning Center and read Trusts as a good resource to learn more about this subject matter.

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