oldfort wrote: ↑
Thu May 07, 2020 3:04 pm
Economically, it doesn't make a difference whether the heirs have their wages garnished and assets outside the trust seized, there is no trust and the heirs can pay off the creditors themselves, or the trustee makes distributions from the trust to pay off the creditors. In all cases, the creditors are paid and the heirs are poorer. The only situation where your spendthrift heirs might be able to get out of paying their creditors completely is if they file for bankruptcy.
oldfort, I appreciate your point about the fungibility of money.
I am reminded of a point I read a while ago but had forgotten. Part of the purpose of a trust (or other structures, partnerships, etc) is to add uncertainty and cost to recovery, which typically reduces the creditor's threshold for settlement.
Say person A injures B in car accident. B feels entitled to 300k of med costs and pain & suffering.
Case 1: A has 100k assets + 900k in well-structured trust
Case 2: A has 1000k assets
In case 1, injured person may be willing to settle for 100k, due to difficulty and chance of failure of reaching trust moneys.
In case 2, injured person may not settle for less than 300k. "See you in court"
If B is willing to settle for 50k either way, your fungibility point holds, and trust provided no clear benefit to A.