Asset Protection and Trusts

Aside from purchasing excessive liability insurance, the wealthiest members of our society are choosing to place their assets into trusts to protect them from their creditors. These trusts, called asset-protection trusts, act to shield the liquid assets that are placed within the trust from creditors. However, there are a few important aspects that a person might want to take into consideration when deciding whether or not this is the best option.

• This option would allow a person to continue to receive benefits from the assets located within the trust.
• However, this type of trust does not offer protection from past creditors. This type of trusts only shields a person’s assets from future creditors. 
• There are a number of states that allow for the creation of one of these trusts. These states are Delaware, Nevada, New Hamsphire, and Alaska.
• A lawyer might want to consider advising a client that they should not place more than 50% of their total liquid assets within the trust, mostly because these trusts should act like a last resort and not their primary means of asset protection. 
• A person might want to consider other means to protect his or her assets, such as if a state provides asset protection in the form of Homestead Rights.
• Even if a person opts to place their assets within one of these trusts, it still might be a good idea to purchase excessive liability insurance. 
• The costs of creating this trust and retitling a person’s assets can be high.

See Elizabeth Ody, Wealthy Americans Turn to Trusts to Shield Assets, Bloomberg, May 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.