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Sacramento Estate Planning Attorney

Can a trust shield an inheritance from creditors in California?

In California, the revocable trust is a popular estate planning vehicle, in part because it provides for management of trust assets by a trustee during the settlor's life and after their death. A trust will typically provide that income generated by the trust assets will be paid to the beneficiaries at designated intervals. The trust may specify circumstances under which the trustee can pay trust principal to the beneficiaries, and may provide for lump sum payments of principal at designated times. A revocable trust may also give the trustee discretion about when to make payments to the beneficiaries.

Many revocable trusts contain a "spendthrift" provision which prohibits the voluntary or involuntary transfer of the beneficiary's interest in the trust income or principal. This language generally protects the trust's assets from seizure or attachment by creditors, until such time as a payment is actually made to the beneficiary, and then only to the extent of the actual payment.

There are exceptions to the protection provided by spendthrift provisions. If the settlor is also a beneficiary of the trust, the protections of a spendthrift provision will be more limited as to the settlor. If a judgment for child support or spousal support is entered against the beneficiary, the court can order payment of the judgment out of the beneficiary's current or future payments from the trust.

Spendthrift provisions are particularly useful if the settlor is concerned about a beneficiary's ability to handle money, or if the beneficiary has a drug or gambling problem. Even if creditors are able to reach principal or income payments made to the beneficiary, they will generally not be able to force the trust to make a lump sum payment to satisfy a judgment or debt.

Source: Cal. Prob. Code ยงยง 15300-15309, accessed July 9, 2016

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My Sacramento law practice, Michael A. Sawamura, Attorney at Law, focuses on wills, trusts and estate planning law in addition to business law and corporate defense services. My clients include professionals, government employees, small businesses, blue-collar workers and national corporations.

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