This article explores the impact on creditors of two common methods of wealth transfer at death in the state of Missouri: the revocable inter vivos trust and the traditional probate estate administration process. In the former, the trustee will administer the property in the trust in accordance with its terms, thus circumventing the probate process for the assets placed in the trust. In the latter, a personal representative is appointed to manage the decedent’s final affairs through the probate courts in accordance with probate rules. The trustee and the personal representative play very similar roles but are held to different standards when it comes to their responsibility under the law. Each will step into the shoes of the decedent when it comes to managing affairs, but only of them can be held personally liable for mismanagement with respect to the decedent’s creditors.
A personal representative is charged with payment of the decedent’s debts before distributing any remaining assets to beneficiaries, but the trustee has no such duty. Nor will the trustee of a revocable trust be held liable for not doing so. The statutory remedy is instead to chase after the trust beneficiaries individually for their pro rata share of the debt rather than have debts paid prior to distribution; an outcome that can prove to be fruitless in many cases due to the cost of litigation if the beneficiaries choose not to pay. The law is clear that during the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors, which includes claims existing at death. Heirs are simply not entitled to any assets until the indebtedness of the decedent is discharged by proper management of the estate. The law as to creditors' rights needs to be revisited and carefully harmonized to clearly define rights and procedures in all assets at death to avoid such inconsistent results.
Zackary C. Nehls,
Death is Certain but Probate is Optional: How to Transfer Wealth and Dodge Creditors Using a Revocable Trust,
St. Louis U. L.J.
Available at: https://scholarship.law.slu.edu/lj/vol65/iss2/9