How to Provide Asset Protection for Your Children via your Living Trust

Samuel Joseph Mamola

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Estate Planning Attorney

Contributor Level 9

Posted almost 6 years ago. 4 helpful votes

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1

Conventional Living Trusts

Most people create a trust with the intention of shielding their assets from inheritance taxes and avoiding probate. In most cases, the trust is designed with the children as beneficiaries, and the originators believe the assets will all go to the children as intended. Certain events, however, can prevent this from happening and the childrens' futures can be severely damaged.

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No Asset Protection for your Kids or Beneficiaries

While a traditional living trust can transfer ownership of the assets to the children, those assets lack any asset protection. With a traditional living trust, the child's trust assets are subject to seizure by current or future creditors of the children, and this can substantially or completely destroy the child's inheritance.

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Common Debts and Liabilities of Beneficiaries

Even the most careful children may end up liable for alimony payments or child support payments, to which the child's inheritance is vulnerable through a court order. Other creditors may also claim the assets inherited by the children, and this can happen as a result of a failed business, back taxes, or lawsuits arising from automobile accidents. Your living trust, so carefully designed to provide for the children, may end up enriching someone else at your children's expense.

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How It Works

While the child manages the funds as trustee, the child is not the distribution trustee of the CAP Trusta,,?. Thus, the child lacks the formal authority to make any distributions from the trust. Since the child has no power under the trust to make a distribution, no court can require him or her to do so. The distribution trustee designated by the trust can assign funds on a discretionary basis for the benefit of the child and can choose NOT to make distributions to the child's creditors. The distribution trustee is not the child for whose benefit the trust was established, but the child can appoint a new distribution trustee at any time by removing or replacing the existing one. The child is the managing trustee for the trust and can also control the investment of the trust's assets.

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Is It Hard to Set Up and Maintain?

Most people create a trust with the intention of shielding their assets from inheritance taxes and avoiding probate. In most cases, the trust is designed with the children as beneficiaries, and the originators believe the assets will all go to the children as intended. Certain events, however, can prevent this from happening and the childrens' futures can be severely damaged. CAP Trust(TM) and Children's Asset Protection Trust(TM) are Trademarks of THE MAMOLA LAW FIRM, Irvine, California.

Additional Resources

THE MAMOLA LAW FIRM's online website has many articles on estate planning. See link below.

THE MAMOLA LAW FIRM

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