Could it be true that the best trust for asset protection isn’t even an asset protection trust? It may sound strange, but the legal precedent proves it to be true.
Whenever you hear the term “asset protection trust” it almost exclusively refers to a self-settled spendthrift trust. This where the settlor establishes and funds an irrevocable trust naming themself as a beneficiary. The trustee is an independent party who can make distributions from the trust to the settlor. So what does this mean? It means that the settlor can give money or assets to the independent trustee of an “asset protection trust” so future creditors can’t touch those assets. It also promises that the trustee can give the assets back to you at any time. This sounds pretty awesome right!
The problem is that self-settled trusts have historically provided zero asset protection in the United States. Generations of US laws have made it clear that your creditors can reach into a trust that you create if you are also the beneficiary.
This includes dozens of US court cases successfully attacking the assets of offshore asset protection trusts and none to the contrary.
Likewise, domestic self-settled asset protection trusts have failed in the only court cases to date.
So if quote Asset Protection Trusts have a dismal record in protecting assets, what is the solution?
The solution lies right in front of us. Generations of US legal precedent has made it perfectly clear that a non self-settled trust has ALWAYS worked. As opposed to creating a trust and naming yourself as the beneficiary, this trust names a third part as the beneficiary, such as the settlor’s spouse or children. Because the trust is not “self-settled” the creditors of the settlor cannot reach into the trust, so long as there are no fraudulent transfers into it.
We’ve also learned that a special power of appointment is a tool that provides infinite flexibility without subjecting a trust to creditors. Court cases and statutes going back over 200 years have consistently held that a special power of appointment is not subject to creditors, without exception.
We call this a 541 Trust because it is canonized in Section 541(b)(1) of the US Bankruptcy Code, as well as multiple other statutes and court cases nationwide dating back generations. The 541 Trust is superior to what are traditionally called Asset Protection Trusts because:
1. It works in all 50 states and in bankruptcy courts and has for over 200 years.
2. It works for any asset in any location.
3. It is proven by court cases for generations. We can actually show you court cases and other examples where our trusts were upheld.
4. It’s simple to understand, implement, and operate unlike the extremely complex structures associated with offshore trusts
5. It is infinitely flexible and can be modified at any time.
6. It is a fraction of the cost of an offshore trust structure and doesn’t have high annual maintenance charges or complex IRS reporting.
Nobody prepares this trust as well as we do. We pioneered it, we perfected it, and we have seen it succeed in every challenge. Some have criticized the 541 Trust but the legal precedent and the continued court support remains. It doesn’t matter what we say or what others say. The only thing that matters is what the courts say. The courts have spoken in favor of the 541 Trust over and over again.
So technically speaking, a 541 Trust isn’t an asset protection trust. It just happens to protect assets better than the types of trusts referred to as asset protection trusts.
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