Dear Liza, 

My father passed away recently, and all of his and my mom’s assets are held in a living trust (except an individual checking account), of which I am now the Trustee. 

A few collection agencies are now contacting me about collecting on some credit card balances, which are fairly significant.  

From what I’ve read online, it sounds like debt collectors might not be able to lay any claims against the trust, but they can collect from the personal estate of the deceased (i.e. checking account or other assets held in the individual’s name).

Is that understanding correct?  In case the debtors try to collect against the trust, I want to know our rights in that situation.

Dear Trustee,

As Trustee, you are, actually, obligated to pay the debts of the Grantors (the people who created that trust) that you know about before you can distribute assets to the trust’s beneficiaries. That includes taxes and, in this case, credit card debt.

If there are sufficient assets in the trust to pay those debts, you have to pay them.

If there are insufficient assets in the trust to pay those debts, often you can, as Trustee, negotiate a lower payment with the companies — because that debt is not secured by anything (in contrast, say, to a house that secures a mortgage), the companies will often settle for less than the full amount rather than writing off the entire balance.

If you don’t pay these debts and distribute the trust’s assets to the beneficiaries, these companies could, theoretically, go after the beneficiaries for payment from their inherited assets.

Here’s an article that you might find helpful, too.

Liza Weiman Hanks is an attorney who specializes in estate planning for families of all ages. She is a Certified Specialist in Estate Planning, Trust, and Probate Law by the State Bar of California Board of Legal Specialization. A graduate of Stanford Law School, she has also served as an instructor at the Santa Clara University Law School and practiced with the state of California and a prestigious Silicon Valley firm.

Liza is also the author of The Mom’s Guide to Wills and Estate Planning, The Trustee’s Legal Companion and Busy Family’s Guide to Estate Planning: 10 Steps to Peace of Mind. She lives with her family in Campbell, California. This article was previously published on her website. Email her here: asklizaquestion@gmail.com

Liza Weiman Hanks Estate Planning Associate

Liza Weiman Hanks is an attorney who specializes in estate planning for families of all ages. She is a Certified Specialist in Estate Planning, Trust, and Probate Law by the State Bar of California Board of Legal Specialization. A graduate of Stanford Law School, she has also served as an instructor at the Santa Clara University Law School and practiced with the state of California and a prestigious Silicon Valley firm. Liza is also the author of The Mom's Guide to Wills and Estate Planning and The Trustee's Legal Companion. She lives with her family in Campbell, California.