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Practical Asset Protection – Part 5 Living Trust

Revocable living trusts do not give you asset protection. But if your attorney drafts them correctly, your revocable living trust can significantly protect the inheritance you leave your children from divorce claims or lawsuits that could be filed against them.

Most parents do not want to leave their assets outright to their young children. Do you want your 18 year old to have control over his inheritance? Probably not. With good planning, your living trust can be structured to leave your children’s inheritance to them in trust until they reach an age that you hope they no longer need to be protected from themselves. Most of our clients choose age 25, 28 or 30.

However, even if your children are mature enough to wisely manage their inheritance, the inheritance will be vulnerable to claims from a divorcing spouse or a lawsuit creditor.

Ask your attorney to include what we call “lifetime protection trust” provisions in your revocable living trust. Your trust can be written to leave your inheritance to your children in separate trust shares. Instead of designing your trust so your children receive their inheritance outright at a certain age, we believe it is much better to design your trust so that your children’s inheritance remains in trust indefinitely. But, at a certain age, say 25, 28 or 30, or whatever age you choose, each child can become the manager, or trustee of their respective trust. As trustee, they control how to invest and distribute the assets. But because the assets remain in trust, they will be significantly protected.

It takes a bit more thoughtfulness and effort, but if you are going to invest the time and resources to set up a living trust estate plan, why not design it so your hard earned assets are protected for your children?

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