By: Randall A. Denha, Esq.
I am often asked by worried clients, “What else can I do to protect my financial well being from the claims of creditors?” Many clients have shifted opportunities to the next generation, engaged in estate planning, income tax planning and the like. However, very few have thought about and engaged in some sort of asset protection planning. The current state of our economy presents difficult challenges to every American. No one is immune to the effects of the current crisis as evidenced by today’s headlines that highlight the state of the stock market, the jobless rate, the decline in the housing market, and failing businesses, just to name a few. But every challenge presents its own opportunities. Individuals are in search of new ways to address their concerns and fulfill their objectives. Delaware law presents unique opportunities for those individuals throughout the United States, and even abroad, who are more focused than ever on protecting their assets from future creditors and reducing taxes.
Many individuals are concerned about holding on to the assets they still have. One of their fears is the possibility of losing a portion or all of their personal assets if they should be successfully sued. Professionals are exposed to malpractice liability, and entrepreneurs, business owners, and directors of companies may be subject to personal liability. Individuals contemplating marriage are also concerned about losing a significant portion of their assets in a future divorce proceeding. In fact, any one may be subject to liability for personal injury or property damage caused by operating or simply owning a car.
A Delaware Asset Protection Trust (“Delaware APT”) may be the appropriate tool to address the concerns of such individuals. Under Delaware’s Qualified Dispositions in Trust Act, a person may place a portion of his or her assets in an irrevocable, self-settled spendthrift trust, and retain certain rights and powers, including the ability to receive distributions from the trust in the trustee’s discretion, while placing the assets beyond the reach of future creditors. Currently, Michigan does not permit trusts to be drafted in such a way. Because Delaware APTs have been so effective to date, and because of the limitations of other forms of asset protection, a growing number of individuals are creating Delaware APTs.
Another objective of many individuals is to reduce their tax burden. Delaware law provides a unique opportunity to minimize, or even eliminate, state income tax in certain circumstances. This is because Delaware does not impose state income taxes on a Delaware resident irrevocable trust’s accumulated earnings and capital gains if there are no Delaware beneficiaries. Income tax savings are available to grow for the benefit of the trust’s beneficiaries.
Today, more than ever, an awareness and understanding of Delaware trusts is essential to every attorney, accountant and advisor who counsels clients concerning wealth transfer, asset protection, the sale of a family business, and tax minimization.
For more information on this technique or other strategies to protect your wealth and welfare, please feel free to contact me to learn more.