Use of Trusts in Risk Management Planning

2:05 pm Uncategorized

Trusts can be among the useful of asset protection tools. However, many trusts that are created for estate planning purposes are not properly structured to provide protection from creditors.

The typical revocable living trust, wherein the trustors are the lifetime beneficiaries and retain the power to revoke, amend and invade the principal of the trust, provides no protection whatsoever against the creditors of the trustors.

Certain spendthrift trusts can provide protection for risk management purposes. Care must be taken in the setting up and drafting of these trusts, however, in order to account for the estate and income tax consequences as well as for asset protection planning.

Domestic Asset Protection Trusts

Most self settled trusts are not protected from creditors. However, recently, several states have provided various degrees of asset protection legislation for a self settled trust. The legislation of these trusts in Alaska, Delaware, Nevada, Utah and Rhode Island are similar in many respects to the asset protection trust legislation found in several offshore jurisdictions.

It should be noted, however, that the courts have not had an opportunity to pass muster on this type of legislation because of its recent enactment and because the statute of limitations in most cases has not expired. Depending on the timeline involved with respect to when the claim has arisen, these trusts can be and should be considered in appropriate circumstances, but only by an asset protection attorney who understands all of the ramifications.

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