I just talked with the daughter of a deceased client regarding a trust established a few years ago. When I worked with her father on his estate planning a few years ago, his three children were all happily married and doing well financially. I encouraged him to leave each child’s inheritance in a trust just in case one of the children had marital difficulties and/or creditor difficulties.

My client was somewhat unsure of my recommendation, but agreed to establish separate trusts for his three children, with each child being the Trustee of their own trust. Each child has discretion to make distributions to the child and descendants of the child for their health, education, maintenance, and support. The child also has a testamentary limited power of appointment which gives them the power to decide how the trust will be distributed following their death.

The daughter has had a bad run of luck. The business owned by the daughter and her husband has done poorly due to the economy. Furthermore, her husband had a stroke and she has been recently diagnosed with cancer. They have serious creditor problems and are most likely headed for bankruptcy.

The good news is that the trust is protected from their creditors. The daughter will be able to live comfortably for the rest of her life. Furthermore, she has the ability to provide for her husband in the event that she predeceases him. If the father had not had the foresight to leave the daughter’s inheritance in a trust, it would all belong to creditors. This is exactly what the father wanted to avoid.