As society becomes increasingly litigious, the topic of asset protection becomes increasingly important. There are a number of tools available for California residents who are looking to protect their assets from creditors. Trusts are one of the most popular tools for asset protection worldwide.
Irrevocable trusts are designed for the long-term management of assets. They are commonly used in estate planning. There are several different types of irrevocable trusts designed to suit specific purposes. However, all irrevocable trusts have one common characteristic. This characteristic is that the grantor of the trust gives up control and ownership of the property held within the trust.
Irrevocable trusts are commonly used for asset protection. In this regard, the law uses the “step into their shoes” theory. That is, whatever debtors could do, personally, the creditors can step into their shoes and do the same. The grantor of an irrevocable does not have direct access to the assets held in the trust. As a result, creditors of the grantor generally cannot reach the assets held within the trust. California law does, however, include exemptions to this rule. These exemptions include child support claims, alimony claims, federal tax claims, and state tax claims.
Despite the irrevocable name, it is also possible under California law to draft the trust in such a way that changes are permitted. This is possible through the use of different legal devices, such as a trust protector. Trusts protectors are disinterested parties who take on fiduciary responsibilities for the trust. Trust protectors, who are often accountants or attorneys, have limited oversight powers regarding the trust. It is also possible for the trust deed to allow for the reservation of certain powers by the grantor to make adaptive changes to the trust. Generally speaking, the more powers a grantor retains, the less valuable the trust will be in providing asset protection for the grantor.
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