While the use of a trust is a judgment call in some cases, there are certain situations where they are virtually a necessity. A common denominator in all such cases is that the beneficiary is incapable of receiving an outright gift of the property.
In general, a trust is appropriate in the following situations:
- Judgments:
Prospective beneficiaries may expect legal judgments to soon be entered against them, or such judgments already may have been entered. The use of trusts may provide the needed protection from creditors. Note that a transfer to trust to avoid payments to creditors can sometimes be voided as a fraudulent transfer.
- Divorce:
The beneficiary may have a rocky marriage, or be undergoing a divorce. Outright gifts received by such a beneficiary could be lost to the other spouse. Alternatively, a spouse may lose his or her right to alimony if he or she is deemed to have sufficient assets.
- Business Risks:
The prospective beneficiary may be engaged in a business venture where personal assets are at risk, either directly or as a guarantor.
- Other Problem Areas:
If the beneficiary has personal problems (such as gambling), these may have the effect of putting assets at risk.
