Michigan recently became the 17th state to allow citizens to form – domestic asset protections trusts –that can shield assets from future creditors and lawsuits.
Candidates for this type of trust are those facing liability concerns, high-risk professionals and those with a large net worth.
It’s best to set up this kind of trust far in advance of any creditor problem. In fact Michigan rules state you must provide an affidavit of solvency before creating this trust. While is may seem like an additional hurdle it actually works for your benefit by confirming;
- You have authority to transfer property to the trust
- Transfers will not make you insolvent
- You do not intend to defraud any creditor
- You are not aware of any pending creditor action against you
The asset protections trust is also useful for a person planning to marry, but wanting to protect premarital wealth in the event of a divorce. In this instance all transfer of assets must be made at least 30 days prior to the marriage.
It’s important to note that when setting up an asset protection trust you become the beneficiary and must name someone else to be a trustee. Yet as the beneficiary you can:
- Direct trust investment decisions;
- Remove and replace trustees;
- Veto distributions from the trust;
- Receive discretionary distributions of income and/or principal;
- Receive the income from the trust;
- Direct how the assets are to be distributed on the transferor’s death
Asset protection trusts are irrevocable and there is two year waiting period that must be completed before assets in the trust are legally shielded from creditors.
While not for everyone the domestic asset protection trust becomes another important tool for tailoring estate planning to your individual needs.