What are the legal requirements for an asset protection trust?

Asset protection trusts, also known as domestic asset protection trusts, are legal instruments used to protect assets from creditors. In New Jersey, a trust must meet certain legal requirements in order to qualify as an asset protection trust. First, the trust must be irrevocable. This means that once the trust is established, the settlor (the person who established the trust) cannot modify or revoke it. The settlor also cannot make any changes to the distribution of the trust’s assets. Second, the trust must be funded with assets owned by the settlor. This ensures that the assets are protected from the creditors of the settlor. The settlor must also assign a trustee to handle the trust’s assets. The trustee must be independent from the settlor and must act in the trust’s best interest. Third, the trust must be established at least two years before the settlor’s creditors can make a claim against them. This is to ensure that the trust is not being used to defraud creditors. Finally, the trust must be a resident trust, meaning that the trust must be located within the state of New Jersey. The trust must also be registered with the New Jersey Division of Taxation. By following these legal requirements, a settlor in New Jersey can protect their assets from creditors by creating an asset protection trust.

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