Asset Protection Trusts in Iowa

David M. Repp (Attorney at Law, Dickinson Mackaman Tyler & Hagen P.C.) has recently published his article entitled Asset Protection (For the Rich and Not) In Iowa, 56 Drake L. Rev. 105 (2007).

Here is the conclusion to his article:

With careful planning, significant assets can be shielded from creditors despite the recent amendments to the bankruptcy code. Within reason, a debtor is entitled to convert non-exempt assets such as cash, into exempt assets such as IRAs or a homestead.

Trusts are useful mechanisms to protect assets from the claims of a beneficiary’s creditors. Until recently, however, even trusts could not shield assets from the claims of a grantor’s creditors if the grantor retains an interest in the trust. Today, several states have passed legislation allowing a debtor to create a trust exempt from claims of creditors while retaining an interest in the trust. Iowa is not one of those states, but an Iowa debtor may be able to create a trust under the law of one of the other states. However, the creation of such an asset protection trust in Iowa using another state’s laws is not without risk.

Asset protection trusts can be created under Iowa’s existing laws, but the trust must be irrevocable and the grantor cannot retain an interest in the trust. The grantor should also avoid making a contribution to such a trust if it would cause the grantor to be insolvent or otherwise run afoul of Iowa’s fraudulent transfer laws. The grantor could later access the trust assets by terminating the trust, if all the beneficiaries consent, or by the action of a special power of appointment holder designated in the trust instrument.