An asset protection trust is also known as a self-settled spendthrift trust. The person creating the trust is called the settlor (or grantor) of the trust. In this type of trust, the grantor is also the beneficiary of the trust and can receive distributions from the trust for his or her lifetime.
If properly drafted and administered, the assets held by the trust are unavailable to the grantor’s creditors. For example, if the grantor has an asset protection trust in place and funds it with $500,000 in cash, stocks, or real estate, and is later sued by a third-party, that third-party cannot make a claim against the $500,00 held by the trust. The only exception to this rule is that the third-party may gain access to the funds if they can prove that the original transfer of assets to the trust was fraudulent as to that creditor.
Asset protection trusts can provide significant peace of mind to those concerned about losing their assets to a lawsuit or other claim.