California court upholds asset protection for trust beneficiary

Posted in Litigation, Trust administration at 8:21 am

A California appellate court issued an opinion on February 22, 2007 in Young v. McCoy 2007 Cal App Lexis 224 which will provide encouragement and comfort to trust creators who seek to preserve assets for their beneficiaries.

The court ruled that a creditor cannot force the trustee of a discretionary trust to make a distribution to the beneficiary, if the trustee has reasonably determined that the beneficiary does not need a distribution to provide for their health, education, maintenance, or support.  The practical effect is that – since there is no distribution – the creditor cannot get their hands on the funds which have been preserved for the beneficiary.

This opinion concerns a case where the beneficiary was convicted of attempted murder – but it is likely to be helpful to people in much more mundane circumstances faced by many families, such as divorce, business disputes, and even bankruptcy created by overwhelming medical bills following catastrophic injury or illness.

If your estate plan does not provide asset protection for your family – or if you are using the state’s default estate plan, which does not provide asset protection for beneficiaries – you should think seriously about sitting down with competent estate planning counsel to make sure you’re doing everything you can to provide for the people who depend on you, and the people you care about most.

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