If Trust Settler or Beneficiary Owes You Money

If trust settlor or a beneficiary of a trust owes you money

If the trust document says that a beneficiary’s share of the trust income or principal cannot be transferred (a spendthrift provision), you cannot collect money owed to you until the income or principal is actually paid to the beneficiary. But, you can petition the Court to order the trustee to pay you from the trust assets due to the beneficiary.   See California Probate Code Section 15300, et seq.

If the settlor owes you money and the settlor has the power to revoke the trust in whole or in part, you can make a claim against the property during the settlor’s lifetime.

In some cases, you can make a claim against the settlor for the maximum amount available to the settlor under the terms of the trust, up to all of the property contributed by the settlor to the trust.  See California Probate Code Section 18200.

If the deceased settlor of a revocable trust owes you money, and there is not enough money in the probate estate to pay your claims, you must make a claim against the probate estate.

If you win, your claim will be paid from the property in the trust.  If no probate petition has been filed with the Court, and the trustee has not filed a Notice To Creditors with the court and published it, you can file your own petition to open a probate estate and file your claim in Probate Court.

If the trustee has filed and published a Notice to Creditors, and sent a copy of the Notice to creditors the trustee knows or should know about, you must file your claim with the court within 4 months after the publication of the Notice, or within 30 days after the Notice is mailed or personally delivered to you, whichever is later.

Also, mail a copy of your claim to the trustee.  If the trustee rejects your claim, you will have to file a lawsuit against the trustee to get your money. There are time limits for you to file.  See California Probate Code Section 19255.

The trustee has the right to allow or reject your claim. After the claim filing period ends, the trustee can file a petition to ask the Court to allow a compromise, settle claims that have not been rejected, or to allocate the claims if two or more trusts may be liable for the claim.

If you do not file a claim during the claim filing period, or do not file an objection to the trustee’s petition to approve claims, you will not be allowed to take any further action to collect the debt. The Court’s order will be binding on all claimants and beneficiaries who had notice of the petition.

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Source: Superior Court of California, County of Santa Clara

Harrison K. Long – Business Solutions and Advisory – REALTOR® and broker associate, Coldwell Banker Residential Brokerage – 949-854-7747  (phone) –  CA DRE 01410855 – ExploreProperties@gmail.com (email)

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