Q: Can I move assets to a trust after taking a loan on that asset

A: Yes, you could - subject to some caveats - move assets to a trust after taking a loan on the asset. By taking a loan on the asset, I'm guessing you mean you've borrowed money that is secured by a lien on the asset.

The most common situation where this comes up is where a person owns a home in their personal name, and then forms a revocable trust as part of their estate planning. Typically the home is then deeded into the trust. If there is a pre-existing loan and lien against the property, the trust takes the home subject to the lien. Putting the home in the trust does nothing to take away any of the lien creditor's lien rights to foreclose. Meaning, the lien has priority, and if the loan is not paid, the home can be foreclosed upon, no matter whose name the house may currently be titled in.

Other assets subject to pre-existing liens that are moved into a trust would basically be treated the same. For example, if it were equipment (lien perfected by filing a financing statement) or a motor vehicle (lien perfected by placing lien on certificate of title), failure to pay the loan could still result in the property being repossessed.

If you are thinking about moving assets into a trust in an effort to avoid creditors, you should know that generally that just isn't going to work. For one, those types of transfers can be undone using fraudulent transfer laws, such as the Michigan Voidable Transaction Act. And second, those transfers would still not impair a pre-existing lien.

For more information, please make an appointment for a consult with a reputable estate planning and probate attorney near you.