A common misconception is that a trust provides asset protection for the person who created the trust. Generally, that is incorrect. Most trusts do not provide asset protection for the settlor (the person who creates the trust). When a settlor creates a revocable trust (a trust that the settlor may change) the settlor's creditors have the right to access the trust's assets to satisfy claims against a settlor. If a settlor creates an irrevocable trust (a trust that cannot be modified) and the settlor is a beneficiary of that trust, the general rule is that the settlor's creditors can reach the trust's assets.
However, if a settlor establishes an asset protection trust (APT), the APT can provide liability protection to the settlor for the trust assets and the settlor may have limited access to those assets. There are generally two types of APTs – foreign and domestic. A foreign trust is one that is established in a country other than the
United States
. A domestic trust is one that is established and governed by the laws of a state in the United States. There are less than 15 states that have provisions for an APT. Each state has different rules and requirements to create an APT.
An APT may be an appropriate asset protection tool for (1) professionals at high risk of litigation (physicians, engineers, architects, etc.); (2) couples seeking an alternative to a prenuptial agreement; (3) people wanting to protect a nest egg; and (4) people who are vulnerable to financial scams.
