What is a Protective Trust“Protective trust” is actually an umbrella term that refers to various types of trusts that are put in place to protect a person’s estate and/or assets from taxation, bankruptcy, lawsuits, or other outside threats. The basic goal of a protective trust (also known as an asset-protection trust) is to ensure that trust income goes to the designated beneficiary, and that this transfer will not be altered or interfered with in any way.

A protective trust may be set up for the purpose of paying out an annuity to a beneficiary. Conditions can also be set so that funds are only paid out for a specific purpose (such as an education trust or a special needs trust). The intent may be to ensure that the beneficiary does not spend all of the trust assets (also called a spendthrift trust).

In most trust situations, any trust income that a beneficiary receives is considered an asset of the beneficiary. This means that the trust income can be used in ways the trustor might not agree with.  Many times, we set up protective trusts at the sole discretion of the trustee, which allows both the income and the trust assets to be protected from the beneficiary’s creditors or other problems.

When a protective trust owns the assets, that trust is a legal entity separate from the creator or beneficiary. This separation is what provides the asset protection. For example, if the beneficiary is sued, any assets in the protective trust are not accessible in the event of a civil judgement.

It is highly advised to set-up a protective trust in consultation with an estate planning attorney. If the trust is not created correctly, it will likely not be able to provide the intended asset protection.Our office has experienced and knowledgeable estate planning attorneys who can help you explore your options and decide what tools are right for you. Please contact us online or by phone at (517) 548-7400 in Livingston County and (586) 751-0779 in Macomb County if we may be of assistance.

Post a Reply