Creditor Protection Aspects of Trusts and Trust Devices - Module 3 of 6


Question 1

Bob comes into your office and says, “I owe Bank of Texas $65,000 in credit card debt. Can we put my band new vacation home in a trust to make sure it’s preserved in case I’m sued?” Would this transfer be a good idea?

Question 2

Diane gets into a car accident with George. The next day, Diane transfers $100,000 to a spendthrift trust for the benefit of her children. Can this $100,000 be accessed by George if he later sues her?

Question 3

Mark is your client who has over $400,000 in assets. He tells you that he is soon to be divorced from his wife, Patty after 18 years of marriage. He does not want Patty to have access to that money. In addition, he earns over $250,000 per year as a stock analyst. He does not want her to share in that income through alimony. He asks you to set up a trust for him into which he can place his $400,000 in assets and into which he can contribute his income on an ongoing basis. Will this trust help Mark keep these assets away from Patty?

Question 4

Brian has a daughter, Jane, who owes $50,000 in credit card debts. He wants to give her a gift but does not want the assets to be vulnerable to Jane’s creditors. So, he establishes a spendthrift trust for her benefit, with Susan (Brian’s other daughter) as trustee. Which of the following is correct?

Question 5

Mary is having marital troubles with her husband, Jack. Mary’s mother, Teresa, wants to make sure that Jack does not have access to Mary’s inheritance after Teresa dies. Which of the following is correct?

Question 6

Jerry is trustee of the ABC Trust. Kramer is the grantor, who contributed all of the assets. The trust provides that the trustee may distribute assets to “Jerry, Elaine and George, to the extent that the trustee deems necessary and appropriate.” To whose creditors are the trust assets likely to be vulnerable?

Question 7

Jerry is trustee of the ABC Trust. The trust provides that the trustee may distribute assets to “Jerry, Elaine and George, to the extent that the trustee deems necessary and appropriate for their health, education, maintenance and support.” What impact will the ABC Trust have on the eligibility of the beneficiaries for government assistance programs such as Medicaid?

Question 8

Barry established an irrevocable trust with his four children as beneficiaries. To allow gifts to the trust to be eligible for the gift tax annual exclusion, he wants to give each child a “Crummey” right of withdrawal. However, his daughter Karen is currently being sued by a bank. Which of the following is correct?

Question 9

Marissa lives in Reno, Nevada. If she wants to set up a spendthrift trust of which she can be a potential beneficiary, which of the following is correct?

Question 10

Lois lives in California. She establishes an Alaska Domestic Asset Protection Trust with Peter, who also lived in California, as trustee. Lois is a potential beneficiary of the trust assets. The assets are held in the First Bank of Dover, a Delaware-based banking institution. However, the trust instrument states that Alaska law shall govern the trust and that Alaska shall be the sole forum under which trust matters can be litigated. Which of the following is the greatest danger to the trust assets?