Hi, I’m Dan Weiner, founder of Weiner Law. 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 would you work hard to lose all that money to creditors or lawsuits?
The Limitations Of A Trust
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, one-third 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.
Protect Your Children’s Inheritance From Creditors & Lawsuits
One method that we used 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 a trustee and make decisions about whether to withdraw assets from the trust. This replicates much of the control that the child would have if you transferred the assets to them outright at a particular age, but it gives them the additional asset protection benefits that will apply if they get divorced or if they get sued.
Going back to the question – is there a way for you to protect your children’s inheritance from creditors and lawsuits? There is. It is made possible through a legal instrument known as a lifetime asset protection trust. This type of trust can protect the assets you leave your children from potential divorce and creditors. Consult an experienced trust attorney from Weiner Law if you plan to create a lifetime asset protection trust.
Explore the support a San Diego trusts attorney can provide for your situation.