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Protecting Your Child’s Inheritance from Creditors
Understanding Trust Protections in California
When you establish a trust for your child, it's essential to understand how California law treats these assets concerning potential creditor claims.
Key Legal Insights
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Discretionary Trusts: In California, if a trust grants the trustee broad discretion over distributions and includes a valid spendthrift clause, the assets are generally protected from the beneficiary's creditors.Summeralllaw
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Mandatory Distributions: If the trust mandates distributions at specific times (e.g., "$50,000 at age 30"), once that distribution becomes due, creditors can access 100% of that amount, even if it hasn't been distributed yet.
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Discretionary Distributions: For trusts where distributions are at the trustee's discretion, creditors may petition the court to access up to 25% of any distribution the trustee decides to make. This is based on California Probate Code §15306.5 and was affirmed in the case Carmack v. Reynolds (2017).
Our Approach at Summerall Law
At Summerall Law, we prioritize the protection of your beneficiaries. Our trusts are crafted with:
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Broad Trustee Discretion: Allowing trustees the flexibility to make or withhold distributions based on the beneficiary's circumstances.
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Valid Spendthrift Clauses: Preventing beneficiaries from assigning their interest in the trust and protecting the trust assets from most creditor claims.
Delayed Mandatory Distributions: We often recommend setting mandatory distributions at a later age, such as 30 or 40, to reduce the risk of creditor access during the beneficiary's earlier, potentially more financially vulnerable years.
Why This Matters
By implementing these strategies, we aim to:
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Ensure that your child's inheritance remains protected from unforeseen creditor claims until their basic needs are met.
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Provide flexibility to address your child's changing needs over time.
Ready to Secure Your Legacy?
Our team is here to guide you through the estate planning process with clarity and compassion.
