Question: Can my child serve as the Trustee of her trust and still have protections?
Answer: Yes. However, generally a creditor would likely be able to step into the shoes of the child in order to enforce a judgment or claim. Once in the shoes of the child, the creditor might be able to compel the child to exercise any rights held by the child over the property of the trust.
As an example, if the trust allows the Trustee to make distributions to the trust beneficiary and the child is the sole Trustee (and beneficiary), state law might make those assets available to the child’s creditors.
Generally speaking, if under state law a beneficiary has a right to compel the Trustee to make a distribution, then the creditor can enforce that right.
Comment: One way to protect the assets of the trust is to name an independent Trustee to serve as co-Trustee of the child’s trust. In the situation of a serious creditor claim, the child could potentially resign and leave management (including distribution decisions) of the trust to the Independent co-Trustee.
As always, if you have any questions or would like to learn more, please let me know.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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