If you are unfamiliar with trust planning, you will be intrigued by the asset protection that trusts can provide for your estate planning beneficiaries. Would you like to protect your child’s inheritance from a divorcing spouse, bankruptcy, and law suits? If you’re like most people in our highly litigious society, your answer is a resounding, “Yes! I want asset protection.”
Half of your children will likely get divorced. You can protect your child’s inheritance from a divorce property distribution.
If your child has a business failure, job loss, or medical crisis and must file bankruptcy, his personal assets will be taken to pay off creditors. If you give your assets outright to your child, those assets will be taken in the bankruptcy proceedings as well. However, if you give your assets to a trust for the benefit of your child, they cannot be taken in bankruptcy.
If your child is sued (car accident, malpractice claim, liability claim, or business venture,) the assets you have given in trust are protected and cannot be taken in such lawsuit. His personal assets are subject to creditors.
How does this protection work?
When you give a gift outright, it is under the full control of the beneficiary (in this case, your child.) If your child has full control and ownership of an asset, it can be taken by his creditors. If your gift is in a trust for the benefit of your child, distributions can only be made per the trust provisions. “Provisions” is another word for “instructions.” Your trust will provide that distributions can be made for the health, education, and maintenance of your child and not that of his creditors. Thus, asset protection is created.
If you would like to give your child’s inheritance in a trust to grant asset protection, consult with a qualified estate planning attorney.