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Berge & Berge, LLP Blog

Sunday, May 21, 2017

How to Protect Your Children’s Trust Assets from Creditors

Many parents plan on having their children inherit their trust assets. However, when planning a trust for your children, you want to make sure you complete the task correctly. Getting the trust done right ensures that you can choose how you want to assign the property to your children, and also protects their assets from creditors. An experienced trusts and estate-planning lawyer is invaluable for this task.

Strategies to Protect Your Children’s Trust Assets

By utilizing an appropriate strategy, you can ensure that your trust offers asset protection for your children in case they face:

  • Creditors
  • Predators
  • A divorcing spouse
  • Lawsuits
  • Bankruptcy

To give your children solid asset protection, you need to make sure you put the right language in your trust, and name a Trustee you can count on. By making sure you complete these two steps, you can make sure your children’s assets are protected for whatever period of time you pick, even through your children’s lifetime.

If you aren’t sure how to correctly draft your trust yourself to ensure the language is appropriate, it is always wise to seek legal advice.

Language

You can write your trust to ensure that unused parts of your child’s inheritance can be given to future grandchildren with the same protection you gave to your child. Or, if that child has no children, you can decide to allow the inheritance to go to your child’s other siblings.

By drafting your trust this way, you allow your child to keep the assets you pass down to them apart from a spouse. This means that once you die, your assets go right to your children’s separate trusts, and protects the money from a possible divorcing spouse or creditor issues that could arise from a divorce.

Appropriate Trustees

Many parents decide to pick a Co-Trustee or Sole Trustee they can trust, allowing that person to share in the trust and care for the child until the child reaches a more mature age. If you opt to make your child the Sole Trustee of his or her trust at a particular age, and a risk from a creditor arises, then that child should step down as Trustee and allow an Independent Trustee to help them with the assets.

Using an independent trustee in case any creditor issues arise for your child can help protect your child’s assets.

Independent Trustee

An Independent Trustee is a person not related to the child, and if you choose to appoint one and keep one throughout the duration of the trust, your child will have much more protection from creditors, future divorcing spouses, lawsuits, and the like. An Independent Trustee has much more protection from creditors when controlling the trust then your child would as Sole Trustee, since your child can also be considered the Interested Trustee.

Interested Trustee

An Interested Trustee issue occurs for your child when he or she is serving as his or her own Sole Trustee. Basically, as the party inheriting the assets, and acting as Sole Trustee, your child automatically also becomes the Interested Trustee—the person receiving the true benefits of the trust while controlling the trust. If your child runs into a creditor or predator issue at this stage, they have much less asset protection than if an Independent Trustee ran the trust.

One strategy many parents use to ensure their child’s assets are consistently protected from creditors and predators throughout the duration of the trust is to assign an Independent Trustee immediately, ensuring the best asset protection out there.

For assistance drafting your creditor-proof trust, contact that Law Offices of Berge & Berge today at 408.389.6980.

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