The Legality of Asset Protection Trusts

A trust is an agreement between two people to transfer belongings. Trusts are often used for estate planning, but they have many different purposes. One type of trust is called an asset protection trust. This type of trust does exactly what its name implies. It keeps a set of belongings secure. However, asset protection trusts are not always legal. This short guide will go into deeper detail about what an asset protection trust is, who it is useful for, and when it is legal. After reading this guide, if you think an asset protection trust is a good option for you, speak with an estate planning attorney to learn more and begin the process.

Asset Protection Trusts

When a trust of any kind is set up, some belongings are transferred to the trustee and a condition is set. When this condition is met, the belongings are transferred to whoever was originally determined. They may be transferred back to the original owner or to the original owner’s loved ones, or someone else entirely.

Under certain circumstances, the belongings are protected from creditors while in the trust. This can potentially be used intentionally to avoid having the belongings claimed. An asset protection trust may protect the belongings from taxation, debt, court settlements, creditors, and collection agencies.

Legality

That description of how asset protection trusts may have sounded a bit underhanded to you, and you would be correct. After all, setting up an asset protection trust is often a way to keep someone from collecting what is rightfully theirs. For this reason, asset protection trusts are usually illegal. There are, however, 14 US states where it is perfectly legal to set up an asset protection trust. These states are:

  • Alaska
  • Delaware
  • Hawaii
  • Missouri
  • Nevada
  • New Hampshire
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • Wyoming

If you do not live in one of these states, then you should not consider making an asset protection trust. You can still create a trust, of course, but the laws allow creditors to claim items that are currently in a trust. Most of the time, asset protection trusts are simply impossible, rather than illegal. There are some states, however, where you can get in serious legal trouble for attempting to set up such a trust. If you have more questions about trusts or asset protection trusts specifically, be sure to speak with an estate attorney in Cherry Hill, NJ before you attempt to create one. It is important to know what the law is in your state so you do not get into trouble.

Thanks to Klenk Law for their insight into estate planning and the legality of asset protection trusts.

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