Trusts can be used for assets protection, but not all trusts shield assets from your creditors. State laws also vary regarding when trust assets will be susceptible to collection by your potential creditors.

Asset Protection Trusts

North Carolina currently does not permit self-settled spendthrift trusts, but several other states do. These trusts name the grantor as a trust beneficiary and appoint a third party as a trustee.

Since you are a beneficiary of the trust, North Carolina law allows your creditors to reach these assets. You could set up an asset protection trust in a state that permits these arrangements. You could also create an offshore asset protection trust to achieve the same objective.

However, you should always consult with an estate planning attorney when attempting to protect assets from creditors using a trust or another estate planning strategy.

Special Creditors

There are many other types of assets protection methods other than trusts. For example, simply shifting your resources to assets that receive greater legal protection can be an effective assets protection strategy.

One asset type that receives strong protection is a qualified retirement plan or IRA. These assets are generally safe from bankruptcy creditors. However, it’s important to remember that some creditors have special powers.

If you owe a significant debt to the IRS, they can seize your retirement account in some cases. Other types of debts also have special powers, including:

  • Child support or spousal support owed
  • Some civil court judgments
  • State tax debts owed

Other Asset Protection Methods

A typical revocable living trust does not offer any asset protection benefits. These trusts are good for probate avoidance, but don’t protect your assets because they are revocable and you may act as your own trustee and beneficiary.

One simple strategy that those in high-risk professions often use is to transfer their assets to their spouse, who is at less risk of being sued. Insurance is another valuable asset protection tool to consider.

More complex trusts arrangements can also provide asset protection. You generally need to give up some amount of control over trust assets to make them unreachable by creditors. This can be accomplished in several ways that you can discuss with your estate planning attorney.

At King Law Office, we understand that your estate plan should be designed to fit your objectives and family situation. Our goal is to help guide you through this process and listen to your concerns. Come visit us at one of our multiple office locations in North and South Carolina.

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