Those with significant assets or careers with a higher likelihood of litigation should consider ways to protect their assets. Using Asset Protection Trusts is a popular tool in estate planning for securing your assets in Virginia. Since 2012, Virginia residents can use Domestic Asset Protection Trusts (DAPTs) or qualified self-settled spendthrift trusts. Here are the basics for using asset protection trusts in your Virginia estate planning.
What is an Asset Protection Trust?
“An asset protection trust (APT) is a trust vehicle that holds an individual’s assets to shield them from creditors.”
In a properly structured asset protection trust, creditors or other litigants cannot reach the trust’s assets. However, the Settlor (one who establishes the trust) and named beneficiaries still enjoy access to the assets.
A Domestic Asset Protection Trust (DAPT) is created within the United States in one of the 17 states currently allowing them, including Virginia. Foreign APTs are established in jurisdictions outside the United States.
Virginia Law Concerning Self-Settled Spendthrift Trusts (DAPTs)
While establishing a Self-Settled Spendthrift DAPT in Virginia can be complex, it is a valuable tool for protecting assets you have in the State of Virginia. Below are the basic requirements governing these trusts.
Virginia law allows the establishment of an irrevocable trust that allows an independent trustee meeting specific qualifications to use the trust’s principal assets and any income it generates for the Settlor and other named beneficiaries. Common beneficiaries are the family of the Settlor, such as a spouse, children, or grandchildren.
The basic requirements for creating a Self-Settled Spendthrift Trust in Virginia include the following:
- Transfers to the trust may not render the Settlor insolvent (Virginia Code Sec. 64.2-745.1(C)).
- Existing creditors when the trust is created have five years to file a suit against the assets in the trust. After five years, the assets are wholly protected (Virginia Code Sec. 64.2-745.1(D)).
- The Trust must have an Independent Qualified Trustee. The linked provisions explain the qualifications, but the Trustee cannot be the Settlor’s spouse, parent, child, sibling, or a business controlled by the Settlor. They must also be a legal resident of the State of Virginia (Virginia Code Sec. 64.2-745.2(A)).
- The Trust must be irrevocable by the Settlor (Virginia Code Sec. 64.2-745.2(A)).
- The Trust must have at least one other beneficiary besides the Settlor (Virginia Code Sec. 64.2-745.2(A)).
- The Settlor may not retain the right to disapprove distributions (Virginia Code Sec. 64.2-745.2(A)).
It is important to note that Virginia Self-Settled Spendthrift Trusts do not provide protection from any state or federal tax obligations or child support obligations. These DAPTs are best used as protection against general creditors, lawsuits, or judgments against your estate.
Do I Need Asset Protection?
Anyone with assets they wish to shield from possible lawsuits, creditors, and others should consider creating an effective asset protection strategy as part of their overall estate planning.
- Business owners
- High-risk professions
- Blended families
- Anyone with assets they wish to protect
Several tools exist besides DAPTs, and the Virginia Estate Planning Attorneys at Promise Law are happy to share more and help you build a comprehensive asset protection plan.
Call us today at (757) 866-3730 or complete the contact form to learn more about how you can receive a free consultation with one of our talented and experienced Virginia Estate Planning Lawyers.