How Can I Protect My Assets Without Losing Access to Them?

Putting your assets into a trust is a fundamental part of estate planning for people looking to protect their assets for emergencies or to pass on to the next generation. However, a drawback of certain types of trusts is that while your assets will be protected from creditors, they will no longer be in your name and thus, you will no longer have access to them. Fortunately, a legal tool known as the self-settled asset protection trust serves just this purpose; to protect your assets while allowing you to receive need-based distributions.

Self-Settled Asset Protection Trust

What Can I Protect?

Assets that can be placed in this type of trust vary according to state law but are usually real estate, bank accounts, businesses, and personal property. It’s also important to note that this trust is only effective in protecting your assets from future creditors, not past ones.

What Does This Trust Entail?

As with all other trusts, you are transferring ownership of your assets from you as an individual to the trust itself. Self-settled asset protection trusts are irrevocable, and that irrevocability is the key to shielding your assets from potential creditors. Unlike other trusts, while you cannot act as the trustee, you are legally permitted to be a beneficiary of the trust and while you are prohibited from accessing the funds directly, you may still receive distributions from the trust if such payments are approved by the trustee.

As mentioned prior, the key benefit of self settled asset protection trusts lies in the fact that creditors will not have access to the assets in the trust. For example, if the need arises and the trustee agrees to pay out $200,000 to you over several years, that amount is the maximum amount that creditors can claim.

Challenges With This Trust

It’s important to know that a self-settled asset protection trust will not protect your assets from every type of creditor. For example, family support obligations, including child support, alimony or spousal support may have to be paid out from the trust. Judgements against the grantor as well as taxes may also have to be paid from the trust.

What About Offshore Protection Trusts?

Unlike a Domestic Asset Protection Trust, which is a type of trust that is set up in the U.S., an Offshore Protection Trust (OPT) is set up in a foreign country. The two trusts are very similar, in fact,  DAPTs were actually created to compete with Offshore Protection Trusts. Both, however, come with their own benefits and risks. Offshore Protection Trusts are far away enough that local courts cannot reach them because they are not governed by U.S law. In comparison to an OPT, Domestic Asset Protection Trusts are usually less expensive and quicker to set up. A drawback of Offshore Protection Trusts is that it is more difficult to stay up-to-date with changes in the law wherever your trust was established.

Overall, while there are definitely benefits that come with having a self-settled asset protection trust to protect your assets, anyone looking to create one should be aware of the drawbacks. If you or a loved one are looking to set up this type of trust, we highly recommend that you consult with an estate attorney who will help ensure that your trust is set up in a way that benefits you and complies with local and federal law.