Law FAQ: Can I Place My Assets in a Trust and Protect Them from My Creditors?

Law FAQ: Can I Place My Assets in a Trust and Protect Them from My Creditors?

Before 2007, if an individual created a trust under which he is a beneficiary, the assets of the trust were subject to the claims of his creditors. As a result, an individual could not protect his wealth from creditors and lawsuits while retaining control of his assets. With the passing of the “Tennessee Investment Services Act,” Tennessee has become one of a few states in the nation to enact legislation permitting the creation of self-created (self-settled) asset protection trusts.
The law allows this protection by permitting the individual to create a self-settled asset protection trust referred to as an “Investment Services Trust” (IST).

An IST is an irrevocable trust into which an individual transfers assets while retaining the following rights: ability to direct the investment of the IST assets; receive distributions of principal upon the discretion of the Trustee; live in a home owned by the trust; veto distributions to any other permissible beneficiaries; direct the distribution of the trust assets upon death to any one or more persons; remove the Trustee and other trust advisors and appoint their successors under certain provisions. The settlor may not serve as the Trustee of the IST.

The Trustee must be either an individual residing in Tennessee or a corporate Trustee who is authorized to conduct business in Tennessee. At least a portion of the assets of the IST must be administered in Tennessee. At the creation of an IST, the settlor must provide an affidavit stating under oath that he does not intend to defraud a creditor and that he does not have any pending or threatened court action against him.

The Tennessee Investment Services Act provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. An IST presents a unique solution to those who wish to protect their assets during their lifetime while still retaining the ability to manage those assets and benefit from them.

If you are interested in protecting your assets from future creditors, please contact our office to schedule an appointment to discuss the use of an IST in your estate plan.

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