One of the most powerful and best trusts is the asset protection trust. The asset protection trust, unique to all others, is made to benefit the trust’s creator (called a self-settled trust). Basically, an asset protection trust allows someone to cede legal ownership of assets while continuing gaining the benefits from them. This protects them from creditors who can only reach the debtor’s assets.
Domestic asset protection trusts are self-settled trusts that are only allowed in a few states (including Nevada). To benefit from the advantages of domestic asset protection trusts, the trust must typically contain the following characteristics:
- Be irreversible. Once you put your money in, the asset distribution terms you set in the trust can’t be amended, except a few exceptions, and you can’t take the assets back unless you follow the trust’s conditions;
- Include a spendthrift clause (a provision that precludes a beneficiary from surrendering his or her rights to a trust’s assets, so protecting the assets from creditors);
- A Nevada resident, bank, or trust corporation must be one of the trustees.
- The trustee cannot be the settlor or beneficiary.
Nevada is widely regarded as the best state in which to set up a domestic asset protection trust because it has the shortest seasoning period (the assets are safe for two years after they are placed in the trust), there is no state income or corporate income tax, and there are no exceptions for certain types of creditors. Not only this but no creditor can reach your assets, whether it is a divorcing spouse, alimony, child support, or bankruptcy. None of it infiltrates your trust as long as it is set up correctly.
As a result, the domestic asset protection trust is one of the most potent asset protection options available.