Chapter 29 - § 29.1 • INTRODUCTION

• Jurisdiction: Colorado

§ 29.1 • INTRODUCTION

Clients may wish to create a trust that is irrevocable for a number of reasons, including (1) to remove assets from the client's estate; (2) to make charitable contributions; (3) to protect the assets from the beneficiaries' creditors; (4) to protect assets from the client's creditors; (5) to meet a funding obligation required by a court order, such as a divorce decree that requires a spouse to create a trust for the benefit of children; or (6) to fund corporate obligations, such as for deferred compensation. This chapter addresses the first four of these reasons. Initially, this chapter focuses on the general concepts addressed by many irrevocable trusts. The chapter then delves more deeply into the concepts of (1) designing trusts to qualify for charitable deductions, to achieve charitable goals, and to allow the client to maintain certain benefits; (2) designing trusts to be "intentionally defective" so that the trust income is taxable to a specific individual; and (3) protecting a person's assets from possible future creditors.

When designing a trust to protect a person's assets from creditors, practitioners should realize that trusts for the benefit of the settlor (the creator of the trust, who can also be referred to as the grantor or trustor) are void as against the settlor's creditors existing at the time the trust is established. C.R.S. § 38-10-111. Additionally, a trust may be void as against any subsequent creditors regardless of the existence of any intent to defraud or a spendthrift provision. C.R.S. §§ 38-8-101, et seq.¹

Note that...