Own Nothing, Control Everything – What is an Asset Protection Trust?

Own Nothing, Control Everything – What is an Asset Protection Trust? Asset Protection Trust

– Authored by:  Collin D. Dickey

If you have a high net worth, you may already know that considering an Asset Protection Trust is worth your while. But not only the super wealthy should be considering this estate planning vehicle. If you have creditor or litigation exposure and substantial home equity, retirement funds, or business assets, you could be at risk of exposing your assets to these outside claims.

Michigan law currently allows the use of Asset Protection Trusts, whereby the creator of the Trust, known as the “transferor,” holds assets beyond the reach of creditors. This irrevocable trust names an individual or corporate trustee to distribute assets to named beneficiaries, while those assets remain protected from outside claims. How so? Simply put, a creditor or a litigant cannot become the beneficiary of those assets within the Trust.

Individuals with higher net worth or those with higher risk of creditor exposure commonly use Asset Protection Trusts. Professionals, who are subject to liability for malpractice or exposed to potential litigation, may use this type of trust for protection of their assets. Consider the scenario of a business owner, expecting his or her business to grow over time. Suppose that business owner has a child, who is a physician by profession. How can that business owner create an estate plan and also protect assets from creditors’ claims? The business owner can retitle his or her interest in the business to the Asset Protection Trust, naming the child as the beneficiary. The business owner will effectively retain the ability to manage the business, while protecting the business assets from outside claims against the owner or child.

Now consider that this business owner’s child is in a tumultuous marriage. An Asset Protection Trust can also be used to protect the business owner’s child from claims from a potential ex-spouse. The Trust, and the business within the Trust, will ultimately be distributed to the child. However, the child can continue to keep the business in the name of the Trust, thereby protecting the business assets from claims by a soon-to-be ex-spouse.

Perhaps one of the primary benefits of creating an Asset Protection Trust is that the transferor will continue to have the authority to manage the Trust assets, just as if the transferor still owned those assets outside of the Trust. In other words, the transferor can still buy, sell, and control the assets. And perhaps most importantly, the transferor will still collect any income gained on the assets.

Asset Protection Trusts are not needed for everyone engaging in estate planning, but may be the perfect tool for some. Come talk to us today to evaluate whether your circumstances warrant the need for an Asset Protection Trust.



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