The Living Trust Advisor

CHAPTER 20 The Success of the Third-Party Irrevocable Protection Trust (PUPPET) Depends on Whom You’ve Selected as the Third Party Or, Try Not to Appoint One Private Person to Hold and Manage Money for Another Private Person

In Chapter 18, I wrote a blue streak about the protection trust, a device incorporated into your Living Trust that is used to protect your child’s inheritance from the winds of fate. Essentially, the protection trust forms a castle wall around your child’s inheritance to shield it from whatever problems your child has that could waste and dissipate the inherited assets.

I also discussed several types of protection trusts that have clever acronyms attached to them for easier communication. In some of those protection trusts, you appoint your child to serve as his or her own trustee—the manager of the assets that you leave to the protection trust. However, there are two types that require the use of an independent third party as manager: the third-party irrevocable protection trust (which I dubbed the PUPPET) and the discretionary trust (DT).

In a nutshell, your PUPPET is a special subtrust that you write into your Living Trust. Generally, you create a PUPPET if you have a child with a problem or vice that poses a substantial risk of loss to the inheritance, such as addiction, youth, financial immaturity, or mental illness. Basically, this subtrust of your Living Trust states that after you and your spouse are dead, the Living Trust assets shall be funneled ...