Few States Offer Asset Protection Trusts

A few state legislatures have constructed asset protection trust statutes that permit a grantor to create a trust that is shielded from the grantor’s creditors even though the grantor is be a beneficiary.The states with these statues include Nevada, Alaska, and Delaware. For people not living in those states the creation of a trust will probably not be effective for asset protection. One possible loophole is the Full Faith and Credit Clause. This may allow for the enforcement of a judgment against the trust assets in another state. The Restatement 2nd has a Conflict of Laws provision which indicates that so long as there is a substantial relation to the trust the law of that state can be upheld. Where the trust was created provides a substantial relation sufficient to use that location’s law.

See Charles Rubin, A Not So Good Domestic Asset Protection Trust Case, Rubin On Tax, May 23, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.