Asset Protection Trusts
There are two big options when it comes to estate planning: wills and trusts. Rather than thinking of these options as being mutually exclusive, it is better to think of them as tools designed for particular situations. There are some things that a will does best, there are some things that a trust does best, and you can use both at the same time for different purposes. In fact, there are many different types of trusts, each with their own different functions. This guide will go over the asset protection trust, and discuss when they are legal.
What Is an Asset Protection Trust?
Asset protection trusts are a special type of trust designed to protect certain belongings. If someone has a reason to believe that creditors will take his or her belongings or money, it is sometimes possible to transfer those belongings into a trust, which may protect them from being collected. If this is a legal option, asset protection trusts can be used to protect against debt collectors, lawsuit settlements, and taxation.
Asset Protection Trust Legality
The very first thing anyone considering using an asset protection trust needs to realize is that only certain states allow them to be formed. In the vast majority of states, the formation of an asset protection trust is completely illegal and this is not a valid way to avoid creditors. There are currently 15 states that allow asset protection trusts. These states are:
- New Hampshire
- Rhode Island
- South Dakota
- West Virginia
If you live outside of these states, you should not attempt to create a trust with the purpose of avoiding creditors. An attorney will be able to give you more information on what you should do. If you do live in one of these states, the first thing you should do to learn more about how asset protection trusts work in your state is to speak with an estate planning lawyer, like an estate planning lawyer in Memphis, TN. It is very important to do things legally to avoid ending up in trouble with the law, instead of just having trouble with creditors.
Even if asset protection trusts are legal in your state, there are strict guidelines that you need to abide by. These guidelines do vary from one state to the next, which means having a legal professional providing assistance, advice, and legal services are essential for doing everything by the books. While asset protection trusts can be set up to pass on an inheritance, this is not their usual purpose.
Thanks to Patterson Bray, for their insight into where asset protection trusts are legal.