Domestic Asset Protection Trusts
How does this sound to you?
How would you like to setup an irrevocable trust where your assets would be completely protected from creditors and where you are the beneficiary?
It should sound great. The above is the sale’s pitch for the domestic self settled asset protection trusts (also known as Alaskan, Nevada, Delaware, etc. asset protection trusts).
If they really exist, why have you not heard of them to protect your assets? The answer is simple, they have never been tested in a court of law and many asset protection planners do not believe they will hold up in court.
We state several times on this site that the APS™ was an easy Society to create and have on board the finest asset protection planners in the country because good asset protection planners rarely argue about what works and what doesn’t work when it comes to the asset protection tools. There might be a debate about which tools to use, but not a debate about which tools work.
The one area where you will find debate is with this topic.
It is counterintuitive so say that you can irrevocably give your assets away to a trust for the benefit of yourself. It sounds silly just saying it. But that’s what a domestic asset protection trust is, you give your assets away basically to yourself and by state law, the assets are protected from creditors.
The biggest problem with using these types of trusts is that they are not tested. While the “state” law that should be upheld, many advisors believe they are unconstitutional and could be struck down by a higher court. No asset protection planner worth their salt wants to have their name on the Supreme Court case where their client who moved millions of dollars into one of these trusts loses it all to a creditor attack and wins because the trust is deemed unconstitutional.
There are tax issues with domestic asset protection trusts as well which are outside the scope of this material, but the bottom line with domestic asset protection trusts is that they are “legal” and they “might” work, but most asset protection planners will not rely on them as the first line of defense when protecting a client’s wealth.