trust payouts when there are debts

by DeeDee
(Escondido, CA)

In a living trust my stepmother gave 40% of her life insurance to my half sister, does that money get paid to my sister if there are many debts to be paid first? or do the debts get paid then the 40% is taken off of that amount?

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Aug 19, 2010
Living Trust Settlement -- are debts paid first?
by: Mo Johnson

Hi, normally the trustee would settle the debts first, using the assets in the trust (i assume the life insurance was titled over to the living trust). Normally the debts would be paid in such a way that the assets used to pay them would be used in proportion to what was intended to be left to various people. In other words, payment of debts normally should not affect the proportion of the estate each beneficiary receives.

HOWEVER, it's really impossible to know without reading the trust document. The document should specify exactly how the debts of the estate are to be paid and there are innumerable ways it could be done.

So, you will need to discuss it with the attorney handling the trust and estate settlement.

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