© 2013 Robert L. Shepard, Professional Law Corporation
How can Estate Planning protect my assets from creditors?
Depending on the goals of the client and the nature of the creditors, many types of trust, usually irrevocable in nature, can be created to protect the transferred assets from creditors either of yourself or your intended beneficiary. The general rule is that is you cannot access the assets, then neither can your creditors.
A common scenario where this arises is in the creation of a spendthrift trust. Let’s say you want to leave your assets to your child, but unfortunately your child did not inherit your financial savvy. If your child has lots of debt, be it from credit cards, to back taxes, student loans, to child support obligations, even civil judgments, if you gave your child the asset it would simply get gobbled up by these creditors. Your goal is to provide for your child’s life necessities, not pay their old debts. So you create a spendthrift trust wherein the trustee (usually a professional trustee in this type of scenario) distributes only small portions to the beneficiary at a time. The amounts are simply enough to cover the basics. Your child cannot access the trust money, so neither can the child’s creditors. The money that is slowly distributed to the child usually qualifies as exempt, and so the creditors are left waiting. Just in case you thought ahead – No, you cannot create a spendthrift trust with yourself as beneficiary.