9075 / What are the important elements of an effectively designed domestic asset protection trust?

First, a domestic asset protection trust must be irrevocable in order to effectively protect the assets of the trust creator (settlor) against the claims of future creditors. The trust settlor is named as a trust beneficiary (additional beneficiaries may also be named), resulting in what is known as a self-settled trust. Second, a trustee (whether an individual or a corporation) who is a resident of the state in which the trust is established must be appointed and given discretionary authority over trust administration and distributions.

Importantly, a domestic asset protection trust must contain a “spendthrift” clause in order to protect the trust settlor’s assets against the claims of creditors. See Q 9087 for an in depth discussion of the types of language that can constitute a valid spendthrift clause.

Some of the important considerations that an individual must be aware of when determining whether a domestic asset protection strategy is appropriate are discussed in Q 9076.