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An asset trust is a legal entity created to manage and protect a person’s assets for the benefit of their beneficiaries. It shields assets from lawsuits, creditors, and irresponsible beneficiaries. The trust owns the assets, making them immune from creditors and lawsuits. The beneficiary can receive income and start a business without losing the trust assets. The trust contains a spendthrift clause that protects the beneficiary’s interest from creditors. The trust can also protect assets from a beneficiary with a gambling problem or who spends money irresponsibly by placing control in the hands of an independent trustee.
An asset trust, also called an asset protection trust, is a type of trust created to protect or shield assets for the benefit of the beneficiaries of the trust. Like other trusts, it is a legal entity set up to control and manage a person’s assets or money. Asset protection trusts are meant to protect assets from undesirable events and situations, such as loss in lawsuits, liens created by creditors, divorce settlements, and irresponsible beneficiaries.
When a person, called a grantor, creates an estate trust fund in jurisdictions that have laws permitting it, he provides assets for the benefit of his beneficiaries without worrying about them being lost to creditors or any other organization or individual. Assets placed in a patrimonial fund are no longer owned by a natural person. The trust owns them and is immune from creditors and lawsuits against the beneficiaries or the grantor.
The protective qualities of an estate trust, however, do not limit its benefits. A beneficiary can receive income from the trust and even use it to start a business. He could run the business and benefit financially without worrying about losing the trust assets in a corporate liability lawsuit. The assets of the trust and the assets of the beneficiary would be considered entirely separate.
Estate trusts contain a spendthrift clause, which gives trust authority how assets are used for the benefit of the trust beneficiary. The inclusion of a spendthrift clause puts the beneficiary’s interest in the trust beyond the reach of creditors. This works, however, only before the assets in the trust are distributed to the beneficiary. Once they are distributed to the beneficiary and out of the trust’s control, creditors can sue and attempt to garnish on the beneficiary’s assets.
Asset protection trusts are also sometimes created to protect the trust assets from the beneficiary. For example, if a beneficiary has a gambling problem or spends money irresponsibly, this type of trust can benefit the beneficiary while still protecting the trust assets. Instead of giving the beneficiary control over how the assets are used, this trust places the responsibility for control of the assets in the hands of an independent trustee. This person then decides how the trust money and assets will be used on behalf of the beneficiary. For example, it may provide income that the beneficiary can use for daily living needs, but not give him access to very large sums of money.
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