Danger, Will Robinson, Creditors Approaching! CRTs, QPRTs, and Creditor Claims

By now, most practitioners know that, without proper planning, the assets of the prototypical self-settled trust, i.e., an irrevocable trust that gives the trustee discretion to distribute funds back to the trustor, are vulnerable to claims by the trustor-beneficiary’s creditors. But did you realize that:

• The charitable-remainder trust (CRT), in which the trustor keeps the right to receive annuity, unitrust, or income payments, the qualified personal residence trust (QPRT), the grantor retained annuity trust (GRAT), and the grantor-retained income trust (GRIT) are self-settled trusts?
• Courts have permitted creditors of the trustor-beneficiary of four CRTs to reach trust assets?
• Courts have permitted creditors of the trustor-beneficiary of four QPRTs to reach trust assets?
• The trustor’s surviving spouse may disqualify a CRT by electing against the will in many states?
• Two states do not afford favorable tax treatment to CRTs?

What’s the planner to do? This article will explore the foregoing issues and offer solutions.  READ MORE