An irrevocable children’s trust’s (ICT) advantage is that it
can reduce your income tax and give you some lawsuit protection. The children’s
trust assets cannot be claimed by your creditors, unless you fraudulently
transfer your assets to the trust. Nor will these assets be included in
your taxable estate. Moreover, the trust income is taxed at your children’s
lower tax rates. While the trust is in effect and until the beneficiary
reaches 21, neither the grantor nor the child’s creditors can claim
the trust assets. But one disadvantage with the children’s trust
is that when your child turns 21, the child can claim the trust assets.
The trust is also irrevocable; therefore you can’t prevent your
child from claiming the trust assets. For these reasons you must carefully
consider whether your child or children can properly and responsibly handle
trust assets at age 21. You no more want to lose trust assets to an irresponsible
21-year-old than to a lawsuit.