October 7, 2013
Authored by: Kathy Sherby and Stephanie Moll
There is some uncertainty as to whether and under what circumstances a revocable trust created by a decedent prior to death would be subject to the claims of the decedent’s creditors after the decedent settlor’s death. Now the Sixth District Court of Appeals of Ohio has weighed in on this issue in Watterson v. Burnard, 986 N.E. 2d 604 (Ct. App. Ohio, February 1, 2013).
In this case, Brad Watterson was injured in an auto accident caused by Barthel Burnard. Brad then filed suit against Barthel, but while the personal injury case was pending, Barthel died. Prior to her death and actually prior to the accident, Barthel had created and funded a revocable trust. After Barthel’s death, Brad sought declaratory and injunctive relief that Barthel’s trust would be available to satisfy any judgment he might obtain in his personal injury case. Barthel’s Trustee argued that Brad’s right to access Barthel’s revocable trust to collect on a judgment ceased when Barthel died. The trial court agreed, stating that as a matter of law the assets in a revocable trust would cease to be available to a creditor unless the creditor’s claim was reduced to a judgment prior to the settlor’s death.
The appellate court reviewed the two prior Ohio cases dealing with the recovery from a decedent’s revocable trust after the death of the settlor. These cases made a distinction between (1) the result if the law suit was pending at the time of the settlor’s death and (2) the result if the law suit was filed after the settlor’s death. These cases stated that if the law suit was pending at the time of the settlor’s death, recovery from the settlor’s revocable trust would be possible, but if the law suit was not yet filed, no recovery would be possible. The court then considered Ohio statutes and official comments that a revocable trust is subject to the claims of settlor’s creditors while settlor is alive. Concluding that a tort claimant becomes a creditor the moment the cause of action in tort arises, and that a creditor has access to the assets in a revocable trust created by the tortfeasor, the court concluded that there was no reason to terminate a creditor’s access to revocable trust assets simply because of the death of the tortfeasor. Thus, even though Brad was a “subsequent creditor” (in that the claim arose after the trust was created and funded) the court found that the Ohio legislature intended even a subsequent creditor to have access to a debtor’s revocable trust assets, and that an arbitrary event such as the death of the settlor should not be permitted to change that result.
So in Ohio, as in many states, the assets in a revocable trust are available to satisfy the debts of a deceased settlor to the extent that the now-deceased settlor could have accessed the trust assets during his or her lifetime.