Money or property put into asset protection trusts with the objective that such trust assets would not be taken as part of the estate of the grantor and therefore would not be liable to satisfy his personal debts or obligations.
Asset protection trusts are set up in an attempt to shield the assets of the beneficiary from bankruptcy, taxation or divorce in marital squabbles. These are also designed to protect the assets of the debtor from attachment or realization in enforcement of money decree. Therefore in many jurisdictions such trusts are disregarded as sham arrangements to defraud creditors, revenue, spouse etc.
In 2005 the congress amended Section 548 of the Bankruptcy Code to make all transfers to domestic asset protection trusts within 10 years before the filing of the bankruptcy petition invalid. Therefore trust assets received by the entity within the aforesaid time limit of 10 years back would nevertheless be included within the bankruptcy estate of the grantor or beneficiary.
Some states like Nevada, Alaska and Delaware have asset protection statutes in place to attract trusts. However, these legislations have been criticized as anti creditor. Doubts have also been raised as to the legal sustainability of these provisions.
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