If you’re like most people, you would love to wrap your lifetime gifts or inheritance for your children in the protective cloth of asset protection. Just like the Kennedys and Rockefellers, you can protect the assets you worked so hard for from your child’s divorcing spouse, bankruptcy, business failure, medical crisis, auto accident lawsuit, a slip and fall on his or her property, and other liability exposures. This is asset protection you can’t get for yourself without technical and expensive offshore planning.
How do I provide asset protection for my children?
If you give a lifetime gift, or leave an inheritance, outright to your children, the assets have no asset protection and can be taken by any creditor. To provide asset protection, simply transfer your assets to a trust for the benefit of your children, not to them directly.
Asset protection language
Your trust must have asset protection language, indicating that the trust assets are to be used only for the health, education, and maintenance of your child (and grandchildren). Your trust will further provide that trust assets may not be used to satisfy creditors of your child under any circumstances.
In addition, your trust instructions should provide that your child cannot serve as the sole trustee of his or her trust. Your child may serve as co-trustee or another person may serve as trustee alone.
If you so desire, you can give your child the power to choose his or her co-trustee and replace said co-trustee at will. This provides asset protection but does not tie your child’s hands.
If your child is a spendthrift or has addictive problems (i.e. drugs, alcohol, and gambling), you may want to appoint a professional trustee such as a private or corporate fiduciary (bank or trust company) to serve as trustee.
There is absolutely no reason why you shouldn’t transfer your assets to a trust for the benefit of your children, instead of gifting outright. If you have questions regarding the provision of asset protection for the assets you transfer to your children either during your lifetime or at your death, consult with an experienced and qualified estate planning attorney.