Article On Delaware Asset-Protection Trust

Richard W. Nenno (Wealth Advisory Services) recently published an article entitled, A Practitioner-Friendly Guide to the Delaware Asset-Protection Trust, 30 Prob. & Prop. 53-57. Provided below is an excerpt from the article:

Under the common-law rule against self-settled trusts, an individual traditionally could not create a self-settled trust (that is, an irrevocable trust from which he or she could benefit) and protect trust assets from claims by his or her creditors. So, if a client created an irrevocable trust and gave the trustee discretion to use the income and principle for the client and his or her spouse and children, the client’s creditors could reach all trust assets, even if the trust had a spendthrift clause. As American society became increasingly litigous, interest developed in a trust in which the person creating the trust could retain some potential benefits that could not be reached by his or her creditors. Until 1997, this interest was satisfied only by a trust, often called an “asset-protection trust” (APT) created in a foreign jurisdiction. The Delaware Act, 12 Del. Code §§ 3570-3576, gave birth to the Delaware APT. Besides Delaware, the states that now have some form of APT law are Alaska, Colorado, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and Wyoming. Delaware APT’s are signed regularly. The Delaware APT is not for every client. Instead, it is an option to consider along with other techniques for shielding assets, such as liability insurance, incorporation, tenancy-by-the-entireties property, homestead exemptions, retirement plans, and IRA’s.