Domestic Asset Protection
California Domestic Asset Protection Trust Lawyer
A domestic asset protection trust is any trust that is established to protect your assets from creditors. While usually established in an offshore jurisdiction, the asset protection trust allows the assets to remain in the U.S. under the direct or indirect control of the settlor (the person establishing the trust).
An asset protection trust is usually structured to be:
- Irrevocable for a term of several years
- Treated as domestic grantor trusts for tax purposes
- Returned to the settlor upon termination
The benefits of an asset protection trust include:
- Confidentiality of asset ownership
- Deterrent to litigation
- Protection of otherwise unprotectable assets
For well over a century, individuals in the U.S. have utilized foreign self-settled trusts to protect their assets. Many offshore jurisdictions have either trust enabling legislation or favorable court decisions that provide creditor protection for self-settled trusts. Because of this protection, several offshore jurisdictions have a very substantial trust industry with respect to Foreign Asset Protection Trusts.
Recently, several U.S. states have adopted legislation similar to various offshore jurisdictions. These statutory provisions provide various degrees of Asset Protection for a settlor’s interest as a beneficiary in a self-settled trust. Eleven states have now passed legislation providing for creditor protection to a settlor/beneficiary of an Asset Protection Trust. This phenomenon of Domestic Asset Protection Trust legislation indicates a strong U.S. trend for providing Asset Protection for individuals setting up self-settled trusts.
It should be noted, however, that the courts have not had an opportunity to pass muster on this type of legislation because of its recent enactment and because the statute of limitations in most cases has not expired. Depending on the timeline involved with respect to when the claim has arisen, these trusts can be and should be considered in appropriate circumstances, but only by an California domestic asset protection attorney who understands all of the ramifications.