"If you're leaving assets to a spouse or for the benefit of children, the terms of the trust can protect the child or spouse from creditor attacks," says attorney Marshall Jones of RMJ Family Wealth Planning in West Palm Beach, Fla. He's quick to point out that the creditor protection in the case of a living trust doesn't protect the grantor (creator) of the trust, but is for the beneficiaries of the trust.

By adding provisions to the trust, you can protect your loved ones from unfortunate life circumstances that might come up. What if your beneficiary develops a drug problem? Adding a spendthrift protection clause prevents the beneficiary from transferring any current or future rights in the trust to creditors, predators or any other third party whether voluntarily or otherwise.

Another provision could protect assets in case the beneficiary becomes disabled so that the trust assets need not be drained before that beneficiary qualifies for Medicaid or federal assistance.

"If you are creating trusts for your children because you are concerned about protection, whether it be credit protection or protection from a bad marriage, and want the ability to manage assets for them, then you'll want to make sure that assets passing outside of the estate go into these trusts that you've created for your children," says estate planning attorney Lisa Schneider. "All of that planning is revocable -- it can be changed the next day or next year, as long as you are competent and living," she adds.

A problem often arises in cases of second marriages. Typically, parents want to make sure their children from previous marriages ultimately receive their inheritance, but also want to make provisions for the second spouse.

Proper trust planning can ensure that the biological children eventually receive their inheritance, while providing income for the surviving spouse in the interim. This can be accomplished with a QTIP, or Qualified Terminable Interest Property, trust. If instead the married partners make an informal pact, there's a distinct possibility that the money will end up instead with the surviving spouse's own children.

Learn more about QTIP trusts.