• Domestic Asset Protection Trusts Approved
  • September 20, 2010 | Author: Kay B. Abramowitz
  • Law Firm: Ater Wynne LLP - Portland Office
  • In the December, 2009, issue of Estate Planning,  Howard M. Zaritsky report on the Internal Revenue Service (IRS) Ltr Rul 2009-44002 in which the IRS confirmed that asset protection trusts in states where these techniques are approved and  when properly drafted will achieve the desired estate and gift tax results. These self-settled, spendthrift trust are sanctioned in several states including Alaska and Delaware will not be included in the grantor's estate nor be a gift upon creation according to this private letter ruling.

    To be an asset protection trust, the trust is irrevocable and must be subject to one of the jurisdictions that prohibit a creditor from reaching the assets held in a self-settled trust unless the grantor intends to defraud the creditor by creating the trust; or, the debtor is a current debtor at the time of creation; or, the grantor can require the trustee distribute income and/or principal to the grantor.

    While there is no case law affirming these domestic asset protection trusts, there is now guidance on the position of the IRS as to the estate and gift tax treatment of these trusts. This should provide more comfort to lawyers and their clients using this technique of asset protection.