What is an asset protection trust?

An asset protection trust is a type of trust available in some states, including Texas, to protect assets from creditors. This type of trust puts the assets out of the reach of creditors, making it difficult or impossible for them to access the assets. Assets placed in the trust are protected from all kinds of creditors, including those related to business activities. There are three key aspects to an asset protection trust: First, the assets placed in the trust must be irrevocable, meaning the settlor (or the person who initially creates the trust) cannot make any changes or modifications to the trust. Second, the trust must be created with the express intention of protecting assets from creditors. Third, the trust must be set up with independent trustees, meaning trustees who have no financial interest in the trust or the assets held in it. In Texas, asset protection trusts are governed by the Texas Estates Code and require the settlor to provide specific information in order to be effective. The settlor must also file an annual report that provides information on the trust, its assets, and its beneficiaries. Asset protection trusts are a useful tool for individuals and businesses looking to shield assets from creditors. However, it’s important to note that they are limited in scope and can be challenged in court. As such, it is important to consult with an experienced trust and estate lawyer before creating an asset protection trust in Texas.

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