Protecting Debtor’s Future Inheritance From Irrevocable Trust

Jon Alper Florida Asset Protection Planning

An attorney caller said that he represents the beneficiary of an irrevocable testamentary trust established by the client’s deceased father. The father’s  trust says that after his death the assets in his trust shall be used to support his surviving wife, and that upon her death, the money remaining in the trust shall be distributed immediately to the client and his sister in equal shares. The wife is trustee of the trust established for her benefit.   The father’s trust document has a spendthrift provision which protects the children’s future rights to trust assets.

The attorney’s clients has a civil judgment entered against him. When the trust assets are distributed to the child after his mother’s death the spendthrift provision will no longer protect the money from the client’s creditors. The attorney wants to know how to protect the client’s inheritance.

Here is one suggestion. Half of the trust assets will be distributed to the debtor/client and half to his sister. The mother as trustee of the  trust can use all trust assets now  to purchase an annuity for her own benefit during her lifetime. The mother can name the debtor and his sister as equal contingent beneficiaries of the annuity.  Upon the mother’s death the annuity would be distributed equally to the children. Neither child will inherit from the trust any assets other than the annuity.  The annuity and proceeds would be exempt from the debtor’s creditors. This is not a reversible fraudulent conversion because the mother, not the debtor, is using her trust assets to buy the annuity. This plan assumes that the mother will agree to use the liquid trust assets to purchase an annuity contract.

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Alper Law is a Florida law firm focusing on asset protection for businesses and individuals.