Domestic Asset Protection Trusts‚A Viable Estate and Wealth Preservation Alternative

People are starting to use domestic asset protection trusts more to avoid taxes and protect their assets from creditors. These trusts comply with specific laws in Delaware, Nevada, Alaska, or Rhode Island. They stop creditors from taking money from the trust if the person who made it did it for their own benefit. Richard Nenno, who works for a trust company, says that hundreds of Delaware asset protection trusts have been created with over $2 billion in value. This article explains the laws in Delaware and Nevada, looks at how Florida courts might handle cases involving these trusts, discusses arguments against using these trusts in other states, and talks about the benefits of using them for estate planning. In Delaware, it’s easy to create a trust to protect your assets. The important things to remember are that the trustee (the person in charge of the trust) has to be a Delaware resident, and at least some of the trust’s assets have to be kept in Delaware. The trust agreement also has to say that Delaware law applies to the trust. The trust also has to be irrevocable, meaning it can’t be changed, and have a spendthrift clause to protect the assets from creditors. The person creating the trust can’t be the trustee or have control over the trust’s assets. In Delaware, the person creating the trust can also keep the right to receive income from the trust. But if they are in Florida, a court there might still be able to access that income to pay off the person’s debts. In Delaware and Nevada, you can create a special type of trust to protect your assets from creditors. But there are rules that creditors can use to try to get at the trust assets. In Delaware, a creditor can try to get at the trust assets if the transfer to the trust was fraudulent, if they’re owed alimony or child support, or if the person who made the trust did something wrong. In Nevada, the rules are a little different, but creditors can still try to get at the trust assets if they have a valid claim. If someone in Florida sets up a trust and only has the right to get money from it in limited circumstances, it may be hard for their creditors to take that money. In a case called Brown, a woman set up a trust where she got monthly payments and had some control over the trust. When she filed for bankruptcy, the court said her creditors couldn’t take money from the trust because of rules that protect certain kinds of trusts in Florida. The court said that Ms. Brown’s creditors couldn’t take her interest in a trust because of the rules of the trust. They could only take what she was supposed to get from the trust, not the trust’s assets. This could also apply to a Florida person with a trust in Nevada. The court can’t make the trust give the person money, and the creditor can only take what the person was supposed to get from the trust. A domestic asset protection trust can be better for preserving wealth than a family limited partnership because the trustee has more control over when and how much money can be given to beneficiaries. Also, the trustee can buy things like a house for the beneficiaries, which is harder for a general partner in a family partnership. Foreign trusts can also be risky because they might still be taxed, and a creditor could take the money in the trust. But with a domestic asset protection trust, the settlor doesn’t have to worry about these things. The laws of the state where a trust is created or where the settlor lives may determine how the trust is treated in legal disputes. But if a trust follows the rules of Delaware or Nevada, it’s likely that their laws will be applied. Additionally, according to the U.S. Constitution, courts in Delaware or Nevada may be required to enforce a judgment from a different state against the settlor and the trust. If a trust is created in a different state from where the person who made the trust lives, the courts in that person’s state may not be able to make a decision about the trust. Federal bankruptcy laws don’t always conflict with state laws, and they often use state laws to figure out what happens to the trust in a bankruptcy case. If a trust is protected from creditors under state law, it’s also protected from creditors under federal bankruptcy laws. Some bankruptcy courts have ignored the terms of a trust and applied local laws to allow creditors to take money from the trust. This happened in cases where the debtor didn’t tell the court about the trust or tried to use it to cheat their creditors. But if the trust is set up properly and the person using it is honest, the court should follow the laws of the place where the trust was created when deciding if creditors can take money from it. If someone transfers their assets to a trust to protect them from creditors, the creditors can still go after the assets if the transfer was done to cheat the creditors or if the person didn’t get something of equal value in return. This applies in Florida, and creditors can go after the assets if they had a claim against the person before the transfer or if the claim came up after the transfer. In the case of In re Crawford, a person created a trust and then tried to change it to protect their assets from being taken in a bankruptcy case. The court said this was not allowed because it was a sneaky move to keep their money safe. This can’t happen with Delaware or Nevada asset protection trusts, which have different rules. Overall, these trusts can help with taxes and passing on money to future generations. A domestic asset protection trust can be set up in a way that includes the assets in the person’s estate for tax purposes, or excludes them. How it’s set up depends on what the person wants to do. If they want to avoid gift taxes, they can keep control over the trust. If they want to make sure the assets are not included in their estate for tax purposes, they can make a completed gift to the trust. It’s important to consider the type of trust being used, as some may not protect the assets from creditors. But a domestic asset protection trust can keep creditors from reaching the assets and can allow for the assets to be excluded from the person’s estate for tax purposes. If someone sets up a trust to protect their assets from creditors, they need to be careful about taking any money out of the trust, or else the assets could still be included in their estate for tax purposes. This could also make it easier for creditors to access the trust’s assets. However, if the trust is set up in the United States, it may be easier to avoid these problems and take advantage of tax benefits. Offshore asset protection trusts can help protect your wealth from creditors, but they may be more complicated and costly to set up, and could have tax implications. On the other hand, domestic asset protection trusts may be more recognized and trusted within the United States, and may have less tax reporting and potential tax consequences. Both types of trusts have their pros and cons, so it’s important to seek advice from a professional before making a decision. Using domestic asset protection trusts can be risky because the laws are new and haven’t been tested in court yet. However, based on a case called Brown, these trusts could be a good option for protecting wealth. They also offer tax advantages and could become a popular choice in the future. Some states have specific laws for these trusts, like Delaware, Nevada, Alaska, and Rhode Island. Florida courts have rules that limit creditors from taking a partner’s assets in a partnership to pay off the partner’s debts. This rule applies to both general partnerships and limited partnerships. Spendthrift provisions in trusts can also be invalidated if the trust’s beneficiary tries to take the assets for themselves. These rules are supported by the US Constitution and Florida state law. The article discusses different cases and regulations related to the inclusion of trust assets in an estate for tax purposes. It compares two cases where assets transferred to trusts were considered completed gifts in one case and incomplete gifts in another. It also mentions specific regulations and court cases related to this issue. The author, Thomas O. Wells, is an experienced attorney specializing in tax law.

Source: https://www.floridabar.org/the-florida-bar-journal/domestic-asset-protection-trustsa-viable-estate-and-wealth-preservation-alternative/