What is a Domestic Asset Protection Trust?
June 12th, 2018
The Michigan Qualified Dispositions in Trusts Act of 2016 created a way for Michigan residents to protect their assets from creditors during their lifetimes. Previously, only a few states provided for the creation of an irrevocable trust, also called a domestic asset protection trust. In the past, if a Michigan resident wanted to safeguard assets from creditors or protect them in the event of a future divorce, he or she had to go to another state altogether in order to establish a domestic asset protection trust.
With the passage of the new law, Michigan residents now can place as many assets as they choose into an irrevocable trust. After two years, those assets are completely protected from creditors. Assets in an irrevocable trust also are protected in the event that the creator of the trust divorces; those assets are not subject to division as marital property in a divorce, so long as they went into the trust prior to the marriage. In this respect, a domestic asset protection trust can function as a prenuptial agreement, at least to some degree.
Irrevocable trusts, however, are not usually flexible in their terms if you decide that you want to change them or remove assets from them during your lifetime. Typically, once you establish and fund an irrevocable trust, you cannot change it or remove from property from it, except in narrowly specified circumstances. The exact terms of your trust documents will control your level of access to assets in the trust and how they can be used. For instance, in many cases, you are entitled to income from the assets in the trust, but cannot touch the principal of the trust. Therefore, you have to be sure that you have significant assets to live on aside from the assets that you have placed in the irrevocable trust.
The Ann Arbor long-term care lawyers of Legacy Law Center are experienced in ensuring that you have the comprehensive and up-to-date long-term care and estate plan in place that best will benefit you and your family. We are your trusted advisors who are skilled in looking at all facets of your life, evaluating your needs, and working collaboratively with you and your family to create a plan that meets all of your needs. Contact Legacy Law Center today and learn how we can help you make the right decisions for you and your family.