Who is liable for Trust debts? Is it the Trustee, the Beneficiaries, or the Trust itself? It helps to remember that a Trust is a separate legal entity. The Trustees and beneficiaries are not personally liable for debts owed by the Trust.
The Trustee is acting in a fiduciary capacity. The Trustee is required to gather the assets and pay the Trust debts. If the Trust does not have enough money to pay the debts, the creditors are out of luck. Creditors do not have the right to go after the Trustee or Beneficiaries’ personal assets.
Who gets paid if the Trust doesn’t have enough assets to cover the debts and distribute funds to the Beneficiaries? Check the terms of the Trust. The Trust will typically state that once the debts are paid, the Trustee can distribute the remaining funds to the Beneficiaries. The language of each Trust varies.
The debts of the Trust belong to the Trust, and only the Trust will have to pay Trust debts. Trustees and Beneficiaries do not have to worry about being responsible for debts incurred by the Trust.