Understanding Trusts and Bankruptcy
Trusts are an idea that originated as early as 12th century England. Trusts were initially invented so that lords who were off to fight in the crusades could have their land cared for and managed by someone they appoint while they were gone. An individual was tasked with tending to the lands and to make sure that any and all profits made from the land were used to support the lord’s family. In many cases, lords never returned from battle and the trust was transferred to the lord’s children.
Obviously, we have come a long way from those times and so have trusts. Knowing how to handle a trust can be complicated and adding a situation like bankruptcy to the mix can cloud the situation even more. Having personal bankruptcy attorneys at your disposal can make all the difference in the world. That’s where Nikolaus & Hohenadel, LLP comes in.
Determining whether or not a trust will be affected by filing for bankruptcy depends on a few things. If you’re unfamiliar with how this all works, navigating this landscape can seem like an impossible task. Having knowledgeable and experienced bankruptcy lawyers in your corner is a necessity. When filing for bankruptcy a consumer has to discern whether or not they have control of a trust or not. This will then give them a better picture of whether or not that trust and its assets will play a role in the bankruptcy or not.
Here is a brief overview of how trusts work, two of the more common types of trusts and how bankruptcy might play a role in what happens to said trust(s).
- Trusts have a grantor and a beneficiary. The grantor is essentially the person who creates the trust and decides who the trust belongs to and what assets are in the trust. The beneficiary is the person who would then benefit from the trust and gain any assets within a trust based on the terms set forth by the grantor. This can be explained in more detail by experienced bankruptcy lawyers.
- A revocable trust is a trust that is in the complete control of the grantor. This also means that the trust can be revoked by the grantor as well. The beneficiary does not have any legal right or claim to the trust in this case. Generally speaking, a trust that is considered a revocable trust would not be considered part of a beneficiary’s assets and would be left out of bankruptcy proceedings. When a grantor passes away there may be contingencies put in place that determine how the trust is handled, but this usually means then that the beneficiary now has a legal claim to the trust.
- An irrevocable trust is a trust that is in complete control of the beneficiary. The assets in the trust are permanently transferred to the beneficiary. The grantor is giving up their rights to the assets of the trust and have no legal claim to them. The trust can only be adapted or altered by the beneficiary. This also could make any assets gained from the trust subject to bankruptcy proceedings and are in danger of becoming liquidated.
These are just some of the things you’ll need to familiarize yourself with should you have questions about trusts and bankruptcy. Getting to know what kind of trust you’re dealing with is key when handling a hardship like bankruptcy. It can seem impossible to overcome without help at times. Getting the answers to the questions you have and finding clarity will set your mind at ease. If you ever find yourself needing experienced personal bankruptcy attorneys to assist you in dealing with trusts or bankruptcy, make sure you turn to Nikolaus & Hohenadel, LLP first. Contact them at any of their offices located in Lancaster, Columbia, Elizabethtown, Strasburg or Quarryville.