Virtually all living trusts direct the trustee to pay the debts at death. People do not wish to die leaving their bills unpaid. Some are even concerned about timely payment. They don’t realize that creditors back off when there is a death because there is no one to pressure with phone calls or with threats of a bad credit report. There may be a delay in paying bills because the new trustee has to gather the assets, review the bills, and pay them. This can be done with the help of the living trust attorney.
If payment of a debt is past-due, and the creditor has to file a lawsuit to collect, the creditor must sue before the SOL (Statute of Limitations) has expired. In California, the statute of limitations is four years for debts (except oral debts have a two year SOL). This means that for unsecured common debts like credit card debt, lenders cannot file suit to collect debts that are more than four years past due.
Death changes the AOL for unsecured debts. The four years is reduced to one year when the debtor dies. Thus, if a lawsuit is not filed within one year after death, it cannot be collected. It is not uncommon for a bill to first appear more than one year after death. A trustee should not pay such a bill.
With the use of a living trust in San Diego, the one year SOL can be reduced to four months if the living trust attorney is instructed to file a Notice to Creditors with the court.
A trust can even be written instructing the trustee not to pay debts. This would force a creditor to file a lawsuit within one year to collect. Often the creditor would fail to do that.
Compare a living trust with a probate case. In probate the executor must stay vigilant and pay debts rather than trying to avoid them.
The debts that need closer attention are those that are secured by an asset, such as a mortgage for the home or the loan on a car. Early contact with the creditor is important to make sure the loan does not go into default for non-payment. The living trust attorney can assist. You cannot fail to pay the debt on a secured asset and keep the asset.
Paying bills does not include disputed, excessive, and incorrect debts; those uncollectible because of the statute of limitations; identity theft; and the like.
However, the four years is reduced to one year when the debtor dies. Thus, if a lawsuit is not filed within one year after death, it cannot be collected. It is not uncommon for a bill to first appear after a year. A trustee should not pay such a bill.
- Reduce time to 4 months
- Compare to probate
- Trust could tell trust not to pay bills.
Generally creditors can sue many years after a debt has gone into default. But