What is an asset protection trust?
An asset protection trust is one which protects assets from unnecessary dissipation and avoidable taxes. It is an estate planning tool used to protect your assets from future potential creditors, while retaining the benefits of those assets for yourself or your selected beneficiaries. While there are a lot of ways to protect your assets and minimize taxes with proper estate planning, one of the most common methods is to include a spendthrift provision when setting up a trust.
Spendthrift trusts, in general
A spendthrift trust is simply a trust created for the benefit of one or more persons and funded with assets from the donor, or settlor, and which contains language preventing the beneficiary from transferring or pledging his interest in the trust to another person or creditor. You can even make yourself the beneficiary of such a trust — known as a self-settled spendthrift trust — or name other beneficiaries of your choosing.
Why you will need two attorneys
Unlike twelve other states, however, Texas does not have a domestic as protection trust law. If you want to set up an asset protection trust in a state where it is authorized, you will need an attorney in Texas to coordinate with an attorney in one of these spendthrift trust states:
- New Hampshire
- Rhode Island
- South Dakota
It won't help you dodge existing creditors
While you can set up a spendthrift trust in one of the states named above with the coordination of your attorneys, you can't legally transfer property to the trust for the purpose of hindering, delaying or defrauding any of your creditors. This is known as a fraudulent transfer.
In addition, a court may order the trustee to make disbursements to your creditors to the extent you are otherwise entitled to distributions. In other words, if the trust is worth $1 million and you receive a mandatory $10,000 annual disbursement, a court can order the trustee to pay the $10,000 annual disbursement to your judgment-creditor. Child support obligations are another exception when the creditor (your ex) may be allowed to reach the portion of the trust you are entitled to annually.
Call today to learn more
At Peterson Law Group, we help clients prepare for any event in the future by developing a comprehensive estate plan to fit your needs. Make an appointment with an experienced Bryan, Texas estate planning lawyer by calling 979-703-7014 or 936-337-4681, or visit us online to request a meeting.