Few States Offer Asset Protection Trusts

A few state legislatures have constructed asset protectiontrust statutes that permit a grantor to create a trust that is shielded fromthe grantor’s creditors even though the grantor is be a beneficiary.The states with these statues include Nevada, Alaska, and Delaware. Forpeople not living in those states the creation of a trustwill probably not be effective for asset protection. One possible loophole is the Full Faith and CreditClause. This may allow for the enforcement of a judgment against the trustassets in another state. The Restatement 2nd has a Conflict of Laws provision which indicates that so long as there is a substantial relation to the trust the lawof that state can be upheld. Where the trust was created provides a substantialrelation sufficient to use that location’s law.

See Charles Rubin, A Not So Good Domestic Asset Protection Trust Case, Rubin On Tax, May 23, 2013.

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