Domestic Asset Protection Trusts: Don’t Lose Your Assets to a Lawsuit or Divorce
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Rob Hamrick: Hi and welcome! I’m Rob Hamrick, the Director of Development and Client Relationships at Stuart Green Law. As always, Stuart Green, our founding attorney, is with us as well. Before we get into today’s topic, which is asset protection, Stuart, tell us a little bit more about the practice.
Stuart Green: Sure! Stuart Green Law is a boutique estate planning practice. We focus on asset protection trusts, tax planning, multi-jurisdictional estate planning, and international planning.
Rob Hamrick: Go ahead and like this video and subscribe for more content. Now, let’s jump right in. What is an asset protection trust, and how does it differ from other trusts out there?
Stuart Green: An asset protection trust is what’s called a self-settled trust. That means you, yourself, set it up for your own benefit, and you fund it with assets. These assets are then protected from creditor claims, which can include lawsuits, negligence suits, malpractice suits, divorcing spousal claims, bankruptcy, and really any type of legal risk.
Rob Hamrick: So, you’re saying these are essentially self-benefiting trusts, right?
Stuart Green: Yeah, that’s right. It’s a unique way to look at it, and we don’t usually describe it that way, but it’s exactly what it is—a self-benefiting trust. You set it up for your own benefit. Historically, you could do this only with a revocable living trust, which has no creditor protection; it just allows you to avoid probate. An asset protection trust, on the other hand, is self-settled and self-benefiting, with the added advantage of protecting assets from creditor claims.
Rob Hamrick: So, it’s an irrevocable trust. I think a lot of people worry about that. Are there ways to change this type of trust?
Stuart Green: Historically, the term “irrevocable” has had this connotation that once you set it up, you’re locked in forever with no way out and no ability to make changes. That was the case for many decades, if not longer. But one of the developments in modern trust planning is the role of a trust protector. A trust protector is like a super trustee and allows for a lot of flexibility with an irrevocable trust.
For example, a trust protector can make updates to the trust document if there’s a change in family circumstances or a change in law. They can also decant assets, which means moving assets from the original irrevocable trust into a new or already existing irrevocable trust. There are various reasons for doing this, but the point is, there’s a lot more flexibility now than there used to be, thanks to modern trust laws.
Rob Hamrick: That’s great. We love South Dakota for our trusts because of all the benefits they offer—privacy, flexibility, strong decanting statutes, and the ability to create Dynasty Trusts. So, my question is, why doesn’t everyone have one of these self-benefiting asset protection trusts? It seems like a no-brainer.
Stuart Green: That’s a great question, and I think there are a few reasons for this. I’d say a big part of it is down to the attorneys. Like you said, we love South Dakota because it’s the premier trust jurisdiction in the U.S. People worldwide are choosing South Dakota as their preferred jurisdiction for trust planning for many reasons.
We’re based in Houston, Texas, but we’re licensed in South Dakota, so we can do South Dakota planning. Most attorneys are licensed only in the state where they reside, and they focus their trust planning there. Not all states offer self-settled, self-benefiting asset protection trusts. Currently, only about 20 states in the U.S. have these types of trusts, and only two or three—maybe four—states have really strong asset protection statutes that are worth setting up a trust in. South Dakota is number one, with Nevada probably being number two.
So, if a client hears about asset protection trusts or domestic asset protection trusts, they might go to their local attorney in Texas, California, or wherever and ask about it. Because the attorney isn’t licensed in a state that offers these trusts or doesn’t have a strong background in it, they may not provide the best advice. They might even tell the client it’s not worth the hassle or that they need to find an attorney in South Dakota, which can make it seem like more trouble than it’s worth.
Rob Hamrick: So, a lack of familiarity among attorneys and not enough of them practicing in this specialized area. That’s probably why people don’t know about it.
Stuart Green: Exactly. It’s really down to a lack of familiarity and not enough attorneys being licensed in states like South Dakota or Nevada. Clients are often missing out on these protective vehicles because their local attorneys aren’t spreading the word about them or don’t have the knowledge to guide them properly.
Rob Hamrick: Such great information today. Thank you so much, Stuart. If you like this content, please like and subscribe, and in the meantime, check us out at stuartgreenlaw.com.
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