Asset Protection Trusts

Asset protection trusts are irrevocable trusts designed to protect one’s assets from risk, transfer assets to the next generation, and allow the person making the gift (the Grantor) some limited control over the assets. They are only permitted in a handful of states. Asset protection trusts are allowed in Delaware, and we have relationships with counsel and trustees there.

Traditionally, assets gifted to irrevocable trusts had to be free of control of the grantor. Certain states have allowed persons to gift assets to these trusts, while still having some limited ability to exert control. However, these transfers cannot be done for the purpose of avoiding existing creditors, or in response to a lawsuit – that is commonly known as a fraudulent conveyance.

Here is a simple example: A surgeon owns rental properties in a business entity. He transfers the business interests to an irrevocable asset protection trust in a state that recognizes them. The beneficiaries of the trust are the surgeon’s children. The appreciation is now with the children, a future creditor cannot attach this asset, and the surgeon would be able to episodically (and not periodically) receive some benefit from the asset or the income.