C. Creditor Protection for Your Loved Ones
Proper estate planning can also provide creditor protection for your loved ones. “Creditors” can arise in a variety of capacities: credit card debt, judgment creditors (say, from an automobile accident), student loans, and, commonly, divorcing spouses.
Trusts set up by you, for the benefit of others, can provide financial support for your spouse or children, while not subjecting the assets to their creditors. A typical family revocable living trust will not provide creditor protection while both spouses are alive. However, upon the death of the first spouse, typically (depending on how the trust was drafted) part of the trust becomes creditor protected for the surviving spouse and/or children. And if parents decide to pass on their wealth to the children and grandchildren via continuing trusts, those assets can stay creditor protected for generations.
Trusts also provide protection for beneficiaries from themselves. In our blog here, we discuss how wealth built up by one generation can be lost by the second or third generation. Moreover, if our children are young (and our office generally considers 30 years old and under “young”) enough that they may not have the skills to properly manage anything more than minimal wealth, or if they face other issues such as drug or alcohol abuse, keeping assets in regulated trusts will protect them financially from bad decisions and malignant influences.