Can Beneficiaries be Liable for the Debts of a Trust-Owned Business?

Trusts are structured with liability in mind, to keep the beneficiaries removed from the assets involved. Most Trusts are set up with personal property assets like land, or homes or vehicles, and their liabilities are somewhat limited. But some trusts hold assets like fully operating businesses, LLCs and corporations. So if a business held by a Trust ‘goes bad’, can the beneficiaries of that Trust become personally liable for any portion of the debt generated by any operational business assets within a Trust — especially if that debt exceeds the value of the assets in the trust?

If the beneficiary of a Trust has not had active participation in the operation of the business run by the Trust or is not actively participating in any other activity which may lead the Trust to incur debt in excess of the Trust\’s value, it is highly improbable that any creditor of the Trust could pursue a beneficiary for contribution against a debt.

For a Trustee who actively participates in a Trust-owned business or activity, that person may be subject to liability, but such a liability greatly depends upon the circumstances involved.

For legal advice related to the liability of ANY particular person or situation, we strongly suggest you discuss the matter with an attorney. To find a local attorney for FREE, visit Standard Legal’s Attorney Find page.