Many people that own businesses and individuals that are in high risk professions are vulnerable to legal actions. You never know what the future will hold, and with this in mind, it is important to consider an asset protection strategy.
There are different ways to proceed, and the optimal course of action will depend upon the circumstances. This being stated, the utilization of a self-settled asset protection trust is one possibility that you should be aware of if you are in this position.
Self-Settled Asset Protection Trust
To implement this asset protection approach, you establish the trust and fund it with assets that you want to protect. This would be an irrevocable trust, so you would not be able to dissolve the trust, and there would be no ability to make changes.
The grantor cannot serve as the trustee, so you would surrender direct hands-on control of the resources.
Future creditors would “step into your shoes” with regard to their ability to reach the assets in the trust. They would have the same access that you would have, which is none, and this is where the asset protection lies.
The emphasis on future creditors is very important. You cannot convey resources into an asset protection trust after you know that you are going to be sued.
You can potentially receive distributions of assets in the trust at the discretion of the trustee, and you can also allow family members of your choosing to receive distributions.
State Laws
The majority of states in the union have not yet legalized self-settled asset protection trusts, but more and more of them are opening up to the idea. Right now, there are 15 states that allow these trusts, but Connecticut is not one of them.
Why would we be looking at the subject if you cannot establish this kind of trust in our state? It is possible to establish and fund an asset protection trust in a state that does recognize them.
We are not going to dissect the laws in each of these states, but generally speaking, the property in the trust must be located in the state. This is not a problem when you are conveying securities and/or cash into the trust, but it will not work with real property.
The trustee must also be located in the state, and there are professional fiduciaries in these states that will provide trustee services for a fee.
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