Many clients, not just those in high-risk professions, are concerned about protecting assets from potential future creditors. In New Hampshire, one method of protecting assets is through a 'œself-settled spendthrift trust,' commonly referred to as an 'œasset protection trust.' Authorized under New Hampshire law since 2009, asset protection trusts allow an individual to transfer property to an irrevocable trust that provides asset protection but still allows the individual to benefit from the property transferred to the trust. Before the passage of the enabling legislation, an individual had to give up both control over and access to property in order to protect his or her assets. Now, the asset protection trust affords individuals an opportunity to retain a much greater level of control and access, making asset protection trust attractive to more individuals in addition to those in high-risk professions. For example, business owners or individuals seeking to protect an inheritance from a future spouse.
Asset protection trusts are extremely useful in certain situations, but they are not right for every client and they do not offer protection from all creditors. First and foremost, asset protection trusts do not offer protection of assets for Medicaid purposes. They also do not protect assets from claims for child support or claims for support or alimony by the spouse who was married to the grantor (the one making the transfer) on or before the date of the transfer. Asset protection trusts are also most effective after four years as they do not protect assets from current creditors who make a claim within four years of the transfer nor do they protect against a creditor's claim that arise on or after the date of the transfer who bring an action within four years.
Though it may sound tempting, asset protection trusts cannot be used to shelter all of your assets because you cannot make yourself insolvent. You must have enough outside the trust to satisfy all current creditors. Additionally, it is advisable to leave some safety net outside of the trust.
Finally, you must be willing to give up some control over the assets transferred. While you can maintain the ability to benefit from the assets, you cannot also maintain the ability to have sole control over the assets. To be effective, asset protection trusts must have at least one 'œqualified trustee.' A qualified trustee is an individual (other than the Grantor) acting as trustee who resides in New Hampshire or a bank or trust company which has a place of business in New Hampshire. It is this trustee who will have the sole ability to make distributions to the grantor during his or her lifetime.
While the grantor, cannot make distribution to himself or herself the grantor may act as a 'œTrust Advisor.' As a Trust Advisor, the grantor may have control to veto distributions and consent to investments made be the trustee. The grantor may also retain the power to remove and replace a trustee with another unrelated non-subordinate individual or trust company. The grantor can also maintain the ability to modify how the assets pass upon the grantor's death.
To be effective asset protection trusts require careful drafting and are typically one element in an overall estate plan, which is mindful of asset protection but also takes into consideration other personal, financial and tax planning.
If you would like to discuss whether an asset protection trust would be an appropriate component of your estate plan, call the office and schedule an appointment. We would be happy to meet with you.