Impact of Asset Protection Trusts on the Trustees

Erin C. V. Bailey (Bowden Law Firm, Atlanta, Georgia) has recently published an article entitled Asset Protection Trusts Protect the Assets But What About the Trustees?, Prob. & Prop., Jan./Feb. 2007, at 58.

Here are some excepts from the article:

The orthodox rule is that trusts are not legal entities that can be sued in their own right.  This reality traditionally forced claimants to sue the trustee in its personal capacity, compelling the trustee to then seek reimbursement (indemnification) from trust assets for any resulting personal liability.  Asset protection trusts purpose to protect a settlor's assets from creditors--good news for the settlor but potentially bad news if the unwary trustee is sued in its personal capacity and the asset protection trust shields the trustee from its entitled reimbursement.  It is not known whether courts will respect the asset protection objective or if they do, leave trustees holding the proverbial bag. * * *

Currently * * * nine U.S. jurisdictions allow settlors to create self-settled trusts that use spendthrift provisions to protect assets from the settlor's creditors: Alaska, Colorado, Delaware, Missouri, Nevada, Oklahoma, Rhode Island, South Dakota, and Utah. * * *

Not every DAPT jurisidction puts the trustee at risk.  * * * Alaska, Delaware, South Dakota, and Utah specifically protect trustees.