Connecticut is the 19th state to permit self-settled asset
protection trusts, allowing individuals to transfer assets to an
irrevocable trust on or after January 1, 2020, and remain a
permissive beneficiary while removing the assets from the reach of
most of the individual’s creditors.
In addition to being a beneficiary eligible to receive distributions in a qualified trustee’s discretion (or in some cases, a mandatory right to receive distributions), the individual who funds the trust (the “grantor”) can retain substantial rights with respect to the trust, including:
- the power to veto distributions,
- the power to appoint the property at death to individuals and organizations other than the grantor’s estate or creditors, and
- the power to remove and replace trustees.
An asset protection trust can be created in Connecticut with at least one trustee who is a resident individual or bank or trust company with a place of business in Connecticut. The trust property of an asset protection trust is generally insulated from claims by creditors of the grantor who do not bring a claim within 4-years from the date of the transfer into the trust. Certain pre-existing obligations, including claims for child support and alimony or personal injury claims, will survive the 4-year period.
Asset protection trusts should be considered for anyone interested in additional creditor protection, but in particular for the following individuals:
- inheritors receiving significant assets outright, for example a young adult on termination of an UTMA account or Minor’s Trust;
- in anticipation of marriage, as a supplement to a premarital agreement;
- professionals with personal liability exposure such as doctors, lawyers, and financial advisors;
- wealthy individuals to safeguard rainy day funds
Asset protection trusts are generally funded with incomplete gifts, and the trust property continues to be included in the grantor’s estate for estate tax purposes. However, the new legislation provides an opportunity to lock in the increased federal and Connecticut lifetime gift and estate tax exemption for individuals who would not otherwise use the exemption before it is set to expire in 2026. To do so requires a completed gift transfer to an asset protection trust, which is both structured and administered so that the assets are not included in the grantor’s estate for estate tax exposure.
If you would like to learn more about opportunities for asset protection trusts in Connecticut, contact a Withers Bergman attorney.