Can I protect my children’s inheritance from creditors and lawsuits.
A question that often crops up is can I protect my children’s inheritance from creditors and lawsuits?
You spend all your life working to make yourself and your family comfortable. So why, why would you work hard to lose all that money to creditors or lawsuits?
It’s common for trusts in California to leave everything to the spouse after one person passes away, and then after both have passed away, everything is split evenly between the children.
Sometimes the inheritance is transferred outright to the children when they turn 18. Other times, distributions are made at later ages and in stages. For example, each child receives one third of their inheritance at age 25, 1/3 at age 30, and the balance at age 35.
The problem with this very common structure is what happens if your son or daughter receives their inheritance at age 35 and then gets divorced at age 38 or sued at age 39?
Their inheritance was transferred into their name, into their account when they turned 35. So all of that money is now potentially exposed to the divorcing spouse or the creditor.
One method that we use to protect your children’s inheritance from potential creditors or divorce is to set up what’s known as a Lifetime Asset Protection Trust.
This is created within your revocable trust, but comes into existence only after you have passed away or if you have a spouse, after both of you have passed away.
Instead of having your inheritance go directly to your beneficiary, a device such as a Lifetime Asset Protection Trust is set up for your children to hold their inheritance for their entire lifetime.
The trustee can then manage the assets and distribute funds for your children’s health, education and support needs.
By using the Lifetime Asset Protection Trust, your children are protected from divorce, keeping their assets as separate property and safe from creditors and potential divorces.
We can even set these up so that the children can take control of their trust.
At a particular age, the assets would still remain in the trust, but your child can become trustee and make decisions about whether to withdraw assets from the trust.
