Most asset protection plans include an asset protection trust. An asset protection trust is a special kind of trust that is written to keep the assets from creditors, divorcing spouses, or other threats.  Some states have enacted specific statutes to create special trusts with strengthened asset protection features. South Dakota has one such statute.

Many Minnesotans find these trusts to be attractive. Minnesota trusts don’t provide protection if the asset protection trust is self settled.  A self-settled trust is a trust that is made for the benefit of the creator.  In Minnesota, this kind of trust does not provide any protection from creditors.  This makes trusts in other states attractive for asset protection.

These trusts can be made just within Minnesota as well.  The trust just has to be made by someone other than the beneficiary.  Each partner in a business could make a trust for the other.  It is also possible for the grantor to make the trust for their spouse.  Normally, anything that benefits your spouse also benefits you.

To avoid divorce concerns, the trust defines the spouse as whoever the grantor is married to and living with.  In this way, the trust stays with the grantor and doesn’t go with the spouse in a divorce.  The law in Minnesota also keeps trust assets unavailable for alimony or divorce property settlements.  So long as the trust written as an asset protection trust.

These trusts serve a big part in many asset protection plans.  However, you have to be careful with which assets you place inside.  The trust might be in South Dakota, but if you put Minnesota real estate inside then it might still be at risk.  Sure, the trust is potentially outside of Minnesota’s jurisdiction, but not the real estate. Since it is still in Minnesota, the Minnesota courts can get control of it easily.

Another weakness of these trusts comes from Federal law. In many Federal lawsuits, the laws giving rise to the claim allow the Federal Court to ignore state property laws.  This happens a lot with the IRS and bankruptcy.  So you should keep these kinds of things in mind when you have an asset protection trust.

A well written and maintained asset protection trust can provide an enormous amount of protection.  Most people should have these trusts within their asset protection plan and their estate plan.  The assistance of an experienced asset protection attorney is very important when establishing these trusts.

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