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Asset Protection Trust

By IncNow | Published October 8, 2013

A legal agreement where a wealthy person (grantor) sets aside money, in the name of a Delaware Trustee, for the grantor’s future benefit, to protect the grantor’s personal assets from the grantor’s unforeseeable future creditors. By comparison, an LLC is sometimes referred to as a “poor man’s asset protection trust” because an LLC is not an effective method to protect personal assets from personal creditors. Historically, one could not use a self-settled asset protection trust for which the grantor is the beneficiary to avoid creditors, until the advent of new laws about fifteen years ago. There are numerous requirements for this to avoid defrauding creditors, and not all states have them. Delaware is one of the most favored states for these types of asset protection trusts. The trust must be set up for four years before the assets in them are protected from any types of creditors. The grantor must not have creditors with foreseeable claims and should not put more than one-third of his or her assets into this trust. In exchange the grantor gives up a good deal of control to a third party trustee, who would need to be in Delaware. Usually these are funded with cash and not real estate, although sometimes they are funded with Delaware LLC interests in other assets. Usually these trusts contain at least three hundred thousand dollars to justify the administration and start-up costs.

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When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go