Our Alpharetta readers may have heard of asset protection trusts, or self-settled trusts, in the context of estate planning. Self-settled trusts are those in which the grantor and the beneficiary are the same person. Such trusts receive the type of protection from creditors normally given to other types of trusts while allowing the grantor to maintain control of the assets.
In most states, self-settled trusts do not shield the trust creator from creditors. Some states, however, do permit such trusts. These are typically referred to as domestic asset protection trusts, or Alaska trusts, since the state of Alaska was a pioneer in allowing them.
In a typical arrangement, the grantor funds a trust with cash and/or property. The funds are distributed over tine or upon the occurrence of a specified event to the beneficiary or beneficiaries. A trustee manages the trust for the benefit of the grantor.
Trust assets in these arrangements are not subject to creditor claim unless the original transfer was intended to defraud a known creditor or to cause the grantor to become bankruptcy.
At present, eight states permit asset protection for self-settled trusts. Alaska has the additional advantage of protection assets from ex-spouses. Alaska trusts can continue for several generations, making it possible to reduce estate taxes.
There are particular legal requirements for Alaska trusts. One such requirement is that the trust assets be administered by a "qualified person." In setting up these trusts, it is important to work with an attorney that understands the relevant law, as well as your goals.
Source: Business Management Daily, "Estate planning: Why Alaska trusts are not half-baked," August 7, 2012