Living Trusts are not known for asset protection but there are circumstances where they may be utilized.
1. Inclusion of a Spendthrift clause;
2. To protect from Medi-Cal claims;
3. Use of a Bypass or QTIP Trust;
4. Protection for a beneficiary’s inheritance.
Spendthrift Clause: This provision should be in all Living Trusts, It’s primary objective is to protect Trust assets from creditors of the beneficiaries. Thus, if a creditor of your child or some other beneficiary attempts to enforce a judgment against their inheritance during your lifetime the Spendthrift clause prevents it.
Medi-Cal claims: When a person receives Medi-Cal, the amount is accumulated over time. On the death of the Medi-Cal recipient, the state will enforce a claim for reimbursement against any asset subject to Probate. If a Living Trust is properly funded, it will protect all of the Medi-Cal recipient’s assets, including his/her home from Probate and Medi-Cal claims.
Bypass or QTIP Trust: On the death of a spouse, a portion of the decedents spouse’s property may be transferred to a Trust which may provide income and principal benefits for the surviving spouse. Usually, such Trust is designated as a Bypass or B Trust or a QTIP, or a C Trust. These Trusts are unamendable and irrevocable. If they are managed by an independent Trustee, they can protect from creditors of the surviving spouse.
Inheritance Protection: Provisions that I wrote and received a copyright on in 2016 are my PIT provisions acronym for Protective Inheritance Trust provisions. These provisions are designed to protect a child or beneficiary’s inheritance from legal proceedings after the death of a parent. As a result, the parent’s Living Trust can be prepared as an asset protector for the children.
If any of these provisions interest you, please contact our office for a consultation.
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Blessings,
Jack E. Stephens, J.D., LL.M.
Thought Provoking Quotes
“Many of us crucify ourselves between two thieves – regret of the past and fear of the future”.
– Fulton Oursler