Can a Judgment Creditor Put a Lien on a Trust?

When a creditor obtains a judgment against you, he may be able to garnish your wages, remove money from your bank account or put liens on your property. Some individuals place their assets in trusts to protect them from creditors. However, depending on the type of trust, creditors may still have access to your assets.

Revocable vs. Irrevocable

When you create a trust, it can be either revocable or irrevocable. If you create a revocable trust, you can change its beneficiaries, trustee or assets at any time. However, if you create an irrevocable trust, you can't typically change any of the terms once the paperwork is complete. Property you include in a revocable trust is still part of your estate, while you are no longer the legal owner of property you place in an irrevocable trust.

Implications for Creditors

Because you maintain control over the assets you place in a revocable trust, creditors may be able to put a lien on them or seize them to repay your debts. However, you no longer own the assets you place in an irrevocable trust, so creditors can't typically put liens against them or garnish them even if they have a judgment against you.

Implications for Beneficiaries

Creditors can't put liens on an irrevocable trust for the trust creator's debts because the assets in the trust no longer belong to the creator. Creditors can't attach to the trust for a beneficiary's debt, either, because the assets in the trust don't belong to the beneficiary until the trustee distributes them. However, after a beneficiary receives a distribution from the trust, creditors may be able to garnish the distribution to satisfy the beneficiary's debts.

Considerations

Creditors can't typically attach to assets placed in offshore trusts, whether or not they are revocable. Though creditors can't usually place liens on assets in irrevocable trusts, if a creditor can prove that the creator of the trust formed it to avoid paying his debts, a judge may render the trust invalid and allow the creditor to put a lien on the assets under the Uniform Fraudulent Transfer Act.