Gabriel Katzner - June 1, 2015 - Asset Protection

My most sophisticated clients understand that estate planning is more than just “leaving stuff to your loved ones.” Your death provides you an opportunity to do something for your loved ones that is largely impossible during life. Having an estate plan which creates an asset protection trust upon your death is a gift to your loved ones that will benefit them for decades, if not longer.

Asset Protection Trusts: the Basics

At its most basic level, an asset protection trust is simply an irrevocable trust. An irrevocable trust is what it sounds like: a trust that once created can’t be undone. The money in an irrevocable trust can only be distributed by the trustee to the beneficiaries of your choosing under the circumstances of your choosing. This separation of beneficiary and ownership is what protects the assets in the asset protection trust. If the beneficiary could reach in and use the assets for anything and everything, the money would not be protected from creditors, predators, the beneficiary’s bad habits, and potential ex-spouses.

An Asset Protection Trust Protects an Inheritance

Less informed individuals say to themselves, “I’ve worked hard to save up all of this money. When I die, I will leave it outright to my children.” They do not realize the disservice they are doing to their loved ones. History shows that over 90% of all inheritances left outright are used up entirely within 10 years. This is a waste when there’s a better way.

We live in an age of unprecedented litigation, bankruptcy, and divorce rates of over 50%. Simply leaving money to your loved ones to be put in their checking account is asking for trouble. If your child co-mingles his inheritance with the assets of their spouse, then that inheritance can be lost in the event of divorce. Or their spouse might waste your hard-earned money on frivolous items. It’s a shame when your money ends up purchasing your child’s ex-spouse a fancy home as opposed to paying for your grandchildren’s education. An asset protection trust prevents this from happening.

There’s also the issue that comes with leaving money outright to a minor beneficiary. A minor is unable to inherit under the law until they turn 18. From the time you die until they turn 18, without an asset protection trust, the court would appoint someone to handle their money. This costs money and depletes their inheritance. A much better solution is to create an asset protection trust within which would sit the minor’s inheritance.

Asset protection trusts are also invaluable when a beneficiary has or may one day have special needs. It’s difficult to obtain government benefits without first burning through the inheritance. There are asset protection vehicles such as a supplemental needs trust that allow a special needs beneficiary to keep their inheritance while still qualifying for government benefits.

Let’s discuss some of the classic types of asset protection trusts and who they benefit:

  1. An asset protection trust for a minor beneficiary:  If there’s one class of beneficiary for whom an asset protection trust is a must-have its minor beneficiaries. As discussed above, a minor is prohibited under the law from receiving an inheritance before turning 18. Leaving assets to a minor in anything but an asset protection trust is simply poor planning.
  2. An asset protection trust for an adult beneficiary: An asset protection trust for an adult, also commonly called a lifetime discretionary trust, may be necessary if circumstances dictate.  Maybe the beneficiary is a spendthrift, and you know that before even receiving their inheritance, they have already found things to spend it on. Maybe the beneficiary is a doctor, real estate developer, lawyer, or works in another litigious profession. Maybe they are in a shaky marriage, and divorce is on the horizon. Maybe they have special needs or substance abuse problems. As you can see, an asset protection trust for an adult has many applications.
  3. An asset protection trust for a surviving spouse – Maybe your spouse has never been the one to handle money in the relationship, so you’re worried if they’re capable of handling a large inheritance. Maybe you’re worried that they will remarry and later get divorced with much of your money going to their ex-spouse as opposed to your loved ones. Maybe they will need medical care. An asset protection trust can be designed to protect against all of these things.
  4. An asset protection trust for a beneficiary with special needs – A beneficiary with special needs who also receives, or may one day need to receive, government benefits should not receive an inheritance outright. It can cause them to lose their government benefits, resulting in the need to exhaust their inheritance before reapplying for government benefits. A special needs trust also called a supplemental needs trust, is the proper way to leave an inheritance to a special needs beneficiary.

Everyone would benefit from having their inheritance in an asset protection trust. It not only provides creditor protection, but there is something about money in a trust that causes it to be treated with reverence. Money is simply treated differently when it’s in a trust created by parents as opposed to just sitting in a personal bank account.

An Asset Protection Trust Can Provide as Much, or as Little Protection as You See Fit

When designing an asset protection trust, there’s a constant trade-off between asset protection and access to money in the trust by the beneficiary. The more easily the beneficiary can obtain money from the trust, the less asset protection the trust affords, and vice versa. Maybe circumstances call for the ultimate in asset protection, and you require a corporate trustee who can only make distributions to the beneficiary under the narrowest of circumstances. Maybe you choose to put the inheritance in an asset protection trust for no reason other than that you understand it will cause the money to be treated with more respect and not wasted. The trust could be drafted to make money easily accessible to the beneficiary while not providing much creditor protection. Where the trust falls on the spectrum is entirely up to you.

Asset Protection Trusts: A Great Planning Vehicle

My most sophisticated clients understand the great flexibility provided by asset protection trusts. They are one of the most often used means of estate planning and are of value to even the most modest estates.  If you have any questions on asset protection trusts or estate planning in general, contact us.

You can schedule a call with us or reach us directly at 855.528.9637 to learn more about how best to plan today to protect those most important to you.

Gabriel Katzner

In 2002, Gabriel Katzner, the founding partner of Katzner Law Group received his Juris Doctorate with honors from the Fordham University School of Law. After spending the first 7 years of his legal career
practicing at Cahill Gordon & Reindel LLP, an international law firm based in New York, he went on to found his own firm.

Gabriel Katzner has a track record, along with a vast number of
outstanding public reviews across platforms, of working hard on behalf of individuals who need assistance with comprehensive
estate planning services. Finding a lawyer who is knowledgeable about revocable and irrevocable trust planning, guardianship for minor children, asset protection, trust administration and probate,
as well as Medi-Cal / Medicaid planning is extremely important.

Years of experience: More than 17 years
Location: San Diego, CA


This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. Furthermore, it has received approval from attorney Gabriel Katzner, an experienced estate planning lawyer with over 17 years of legal expertise.

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