When you create an asset protection trust, you put your property in the care of an independent trustee. Since you technically no longer own it, it cannot go to your creditors to satisfy your debts. An asset protection trust sounds good on paper, and for many people, it turns out to be useful. However, it is not appropriate in every situation, and there are important considerations to be made before you commit to it.
People Who Should Consider an Asset Protection Trust
The most obvious candidates for asset protection trusts are very wealthy people who potentially stand to lose a lot in the event of a lawsuit, etc. However, the extremely wealthy are not necessarily the only people who may benefit from asset protection.
Some people use asset protection trusts in lieu of prenuptial or postnuptial agreements. These can be created without the involvement of your spouse or spouse-to-be, and they do not count as hiding assets, which is illegal.
You may benefit from an asset protection trust if you work in a field that poses a high risk for losses and lawsuits. Examples include real estate developers and doctors.
Considerations in Setting up an Asset Protection Trust
One of the most important things to think about before you decide to set up an asset protection trust is that it is irrevocable. That means if you change your mind later, you cannot cancel the trust and get your assets back. The trustee that you appoint to manage the trust may be able to make distributions at his or her discretion. However, you can expect that your property will no longer be accessible to you once you put it in the trust.
Another consideration is that not all jurisdictions allow asset protection trusts. Currently, the laws of only a handful of states allow for domestic asset protection trusts. It may be possible for you to set up an asset protection trust in one of these states even if you do not live there. However, it is unclear how the law will apply to an out-of-state trust if a creditor does make a claim against you.
Furthermore, you could have legal difficulties if you try to create an asset protection trust while creditors are moving against you. Rather, it should be a preventative action that takes place before you have issues with creditors.
A trust lawyer in Cherry Hill, NJ can answer your questions about asset protection trusts and advise you on whether it is appropriate to your situation. Contact a law office to schedule a consultation.
Thanks to Klenk Law for their insight into estate planning and if an asset protection trust is right for you.