Does asset protection still apply to the principal under a conduit trust?

Q: Does asset protection still apply to the principal under a conduit trust? Obviously not to the distributions, but please clarify as to remaining principal. Does asset protection still apply?

A: The protection of principal will depend mainly on state law. In some states, when a beneficiary regularly receives trust distributions (as is the case with a conduit trust), creditors may access a certain portion or all of the principal as well.  It is our understanding that, in California, if a beneficiary regularly receives trust income, up to 25% of the principal may be assessed by creditors and the rest would be protected.


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