This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal adviser.
Asset protection involves placing your assets beyond the reach of creditors, in a way that you still have use and control of the assets.
It is difficult to protect your assets from your creditors' claims. It can be done in certain circumstances, but it is usually expensive and cannot be done after a creditor's claim arises.
However, protecting gifts or inheritances you leave to children or other heirs is very easy, and is something which should be considered for anyone who may inherit a substantial amount. "Substantial" is a relative term; an inheritance should be protected for anyone inheriting anything more than $100,000.
As each child reaches age 25, the Trust ends and each owns her inheritance outright.
Once each child owns her inheritance, it is hers, and is subject to claims by her creditors.
Also, my future son-in-law might assert a community property claim against my daughter's inheritance.
[His community property claim might be valid or not, depending on my daughter's actions after receiving her inheritance - however, I prefer to eliminate my son-in-law's ability to assert any claim under any circumstance. (Rebecca is only 4 years old, but I don't like him already.)]
Specifically, under the new plan, after my wife and I both die, Laura is in charge until each child reaches age 25; thereafter, Rebecca will be sole Trustee for Rebecca's 50% share (and Jessica, on reaching age 25 will be the manager for Jessica's half). Each child will determine how to invest her own inheritance and when to spend money for whatever purposes she deems appropriate. I have also allowed each to spend money for the health, education, and support of any their children (my as yet unborn grandchildren).
This means that Rebecca will not be the owner of her inheritance.
However, as her own Trustee, she can spend whatever she thinks she should, for herself or for her children and at her death any remaining assets go to her children (in Trust).
If she and her husband want to buy a house, the Trust is authorized to invest in real estate, or loan them a downpayment. She has tremendous flexibility, but not ownership.
Unfortunately, it is not as easy to establish a similar Trust for yourself. However, this is an easy way to provide protection for your children or other heirs without too much cost, whether they are age 3 or 55.
There are several imperfections of this plan.
This is another reason to have a Living Trust.
It is also an excellent way to make lifetime gifts.
See an article about the benefits of a Dynasty Trust: Heir's View.
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