Asset Protection Trusts

Purpose:
To preserve assets in a trust for use by the beneficiary(ies) while providing creditor/liability protection.

Key points:

  • Settlor of the trust can have a beneficial interest.
  • Trustee has discretionary power over distributions. The beneficiary does not have the power to demand distributions.
  • The beneficiary may not assign their interest in the trust prior to the actual distribution. This prevents creditors from being able to attach a claim of interest to the trust itself.
  • Taxation Consideration. This particular trust vehicle is considered irrevocable therefore it will not be included in the gross estate of the settlor since it is considered a completed gift.

SD Statute:

  • The statute of limitation on the time a creditor can challenge a transfer is limited to 3 year time period.
  • Specific exemptions concerning fraudulent transfers or transfers with an intent to defraud are detailed in the statute. This is also the creditors burden to prove should they feel a transfer falls into this category.

Specific Situations where this would be of beneficial:

  • To protect an inheritance that is received in a lump sum from potential creditors of the beneficiary.
  • A spendthrift provision within this type of trust could also be used as a tool to control the spending practices of beneficiaries.
  • Individuals in high risk professions that incur a substantial level of liability. (Medical professionals, lawyers, business owners)
  • Beneficiaries who are mentally or physically unstable could also benefit from this form of trust.

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