Michigan’s New Asset Protection Trust

Trusts have always been great estate planning tools. You can get all kinds of protections for your beneficiaries after you are gone, such as protection from creditors, divorces or remarriages. Although your beneficiaries could have access to the assets of the trust for their needs, their creditors or their new or divorcing spouses could not.

However, these same protections were not available to you with those same assets during your lifetime. During your lifetime, those assets are owned by your Michigan revocable living trust. You have full access to the assets in the trust. As such, so do your creditors and new and divorcing spouses.

If you wanted to put your own assets in your own trust and have those asset protected from your creditors and new and divorcing spouses, you had to go outside of the state of Michigan. You needed to go to one of the sixteen states that allow domestic asset protection trusts, such as Alaska or Nevada, set up an irrevocable trust, hire a trustee in that state, and transfer your assets to that trustee.

This all changes with the Michigan Qualified Dispositions in Trusts Act of 2016. Effective March 7, 2017, this act allows you to set up an irrevocable trust, which, if certain legal requirements are met, shields your assets from your creditors. You can set up a Michigan trust with a Michigan trustee and keep the assets in Michigan.

Once properly established and assets are properly transferred to the trust, your creditors generally cannot reach your assets after they have been in the trust for two years. For bankruptcy or fraud, a longer statute of limitations may apply.

This domestic asset protection trust may be used in addition to or as an alternative to a prenuptial agreement. If you are getting married and want to protect your assets, you do not need consent from your future spouse. You do not need to tell him or her what assets you own. The trust property is not considered marital property, directly or indirectly, so long as the property is either transferred to the trust more than 30 days before marriage, or you and your new spouse agree.

So could you benefit from a Michigan domestic asset protection trust? Generally, if you have significant assets to lose and have real creditor concerns, you could benefit from Michigan domestic asset protection trust if you are willing to give up some control over the assets going into the trust.

Some professionals, such as physicians, attorneys, CPA’s and financial advisors, may be candidates for a Michigan domestic asset protection trust. Some business executives and owners may also benefit from such a trust, as would celebrities or athletes. Persons involved in potential high liability activities, such as aircraft or watercraft owners might want to think about these trusts. As would people with significant assets who are getting married.

If you are concerned about possible creditor exposure, you should investigate the use of a domestic asset protection trust. Discuss this with your estate planning attorney to see if it makes sense for you.

By Matthew M. Wallace, CPA, JD

Published edited in the March – April 2017 Savvy magazine,  Port Huron, Michigan as: Michigan’s new asset protection trust

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