How to Use a Trust for Asset Protection

By David Montoya

As with other testamentary instruments, such as a will, trusts give clear directions on how to distribute property upon the happening of a specified event, for example, death. Trusts can also protect assets from creditors, depending on the type of trust you use. This occurs because property held in a trust is considered property of the trust. In other words, once you place property in the trust it is no longer yours; it belongs to the trust. Some limitations exist, however. For example, few states allow trusts for the sole purpose of asset protection. A basic understanding of trusts can help you determine the best type of trust to use in order to protect your assets.

As with other testamentary instruments, such as a will, trusts give clear directions on how to distribute property upon the happening of a specified event, for example, death. Trusts can also protect assets from creditors, depending on the type of trust you use. This occurs because property held in a trust is considered property of the trust. In other words, once you place property in the trust it is no longer yours; it belongs to the trust. Some limitations exist, however. For example, few states allow trusts for the sole purpose of asset protection. A basic understanding of trusts can help you determine the best type of trust to use in order to protect your assets.

Step 1

Speak to a lawyer or consult an online legal document provider to help you construct your trust document. Trust laws vary by state. A lawyer licensed in your state can navigate through all pertinent laws and ensure you create a legally enforceable trust.

Protect your loved ones. Start My Estate Plan

Step 2

Enter the assets that need protection into the trust. This may include assets such as cars, stocks and bank accounts. Any assets you enter into the trust become property of the trust and are no longer yours.

Step 3

Name beneficiaries of the trust. These individuals will receive trust property upon the happening of a specific event. Common events include the death of the settlor, the person who creates the trust, or a beneficiary's arrival at a certain age. Only a few states allow a settlor to also be the beneficiary of a trust since this violates public policy because it is a strong indication that the trust was created for the sole purpose of evading creditors. These types of trusts are commonly referred to as domestic asset protection trusts, or "DAPT trusts." If you'd like to establish a DAPT, first consult with an online legal document provider or attorney to determine whether your state allows them.

Step 4

Name a trustee to control and manage the trust. These responsibilities includes such things as paying off debts and ensuring none of the trust property devalues. The settlor can outline any specific directions for the trustee to follow as well.

Step 5

Finalize the trust document to ensure it becomes legally operative. Once the trust is complete, the assets officially become part of the trust and are fully protected from creditors. Again, it's important to note that full protection only occurs if you follow all pertinent state laws. If not, the trust can fail; thereby, leaving assets susceptible to creditors.

Protect your loved ones. Start My Estate Plan
How to Terminate a Living Trust

References

Related articles

Can a Living Trust Protect a Home From a Lawsuit?

A living trust refers to any type of trust you create during your lifetime rather than having it take effect upon your death. Transferring the title of a home to a living trust will only protect it from a lawsuit judgment if the terms of the trust are irrevocable. However, most state trust laws allow attachment of the home by judgment creditors if the transfer is fraudulent.

How to Create a Trust in a Will

It is possible to include a clause in a will to have your assets distributed to a trust upon your death. This kind of trust is called a testamentary trust. The creation of a trust through a valid will may have several benefits, including the avoidance of probate. In addition, if you want to leave a considerable amount of money to a minor, like your child, a testamentary trust can provide oversight. For a testamentary trust to be recognized as valid, the will must be valid.

Can You Transfer Debt Into a Living Trust?

A living trust is an agreement in which you transfer your assets into the ownership of the trust. You can retain control of those assets by naming yourself as trustee until your death, at which time a successor trustee takes over and distributes your assets to your beneficiaries. While you cannot transfer debt into a living trust, creditors might be able to reach the assets in the trust during your lifetime and after your death.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Wills vs. Trust

Wills and trusts are tools used to ensure your assets are distributed according to your wishes after your passing or in ...

How Does a Living Trust Protect Assets?

Creating a trust to holds assets can help the grantor while he is alive and continue to serve him after his death. A ...

What Happens When a Trust No Longer Has Assets?

Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, ...

A Revocable Trust & Asset Protection

Living trusts are estate planning tools used for transferring property at death. These trusts go into effect during ...

Browse by category
Ready to Begin? GET STARTED