Arizona Asset Protection Trusts Guide

When you’ve worked hard throughout your life to build wealth, you will want to protect it to enjoy in your later years and pass it on to your loved ones. An asset protection trust in Arizona can give you the legal tools you need to preserve the fruits of your hard work. An experienced trusts and estates attorney can help you understand the benefits of an asset preservation trust.

What Is an Asset Protection Trust?

An asset protection trust (APT) allows people to separate their personal estate property from property they place in a trust. Since the law recognizes a trust as a separate legal arrangement, certain kinds of trusts can protect the assets they hold from the creditors of the person who created the trust (the settlor or trustor). With APTs, the focus is on preserving wealth placed in the trust.

Does Arizona Allow Asset Protection Trusts?

Arizona allows asset protection trusts when a settlor creates an irrevocable trust. State law allows a trust to protect its assets from the settlor’s creditors because the settlor cannot amend or revoke an irrevocable trust. Placing assets in an irrevocable trust means the settlor gives up ownership and any ability to own or control the assets.

However, Arizona currently does not permit a domestic asset protection trust (DAPT), or self-settled trust, which would allow the creator of the trust to be a discretionary beneficiary and receive protection from creditors. A hybrid DAPT is permissible, which can potentially protect assets from creditors but excludes the trust-maker from being a beneficiary.

In either case, asset protection trusts are distinct from estate planning trusts — sometimes referred to as asset preservation trusts — which focus on facilitating the distribution of inheritances to beneficiaries, planning for Medicaid eligibility, and reducing the risk of asset depletion over time.

How Do Asset Protection Trusts Work and Get Established?

You can use an asset protection trust to protect various kinds of assets, such as:

• Cash
• Investments
• Vehicles
• Real estate
• Artwork and collectibles

To establish an APT, you must execute a trust document that appoints a trustee and outlines the terms by which the trustee manages the trust. Then you must transfer assets to the trust, including retitling property like real estate, vehicles, or financial accounts.

Creating asset protection trusts can involve various startup expenses, including legal fees to draft the trust document and the paperwork necessary to transfer assets to the trust. Appointing a professional trustee to manage the trust can also lead to ongoing administrative expenses.

What Are the Benefits of Asset Protection Trusts?

Asset protection trusts can benefit settlors by allowing them to shield their wealth from creditors, judgments, or other significant expenses, such as long-term care. These trusts allow individuals to preserve their assets and pass them on to loved ones or other beneficiaries.

What Are the Cons of Asset Protection Trusts?

Using an APT can have some challenges or drawbacks. For example, you must create an asset protection trust before any creditor claims, lawsuits, or financial liabilities arise. If you set up the trust after knowing about a liability, an Arizona court may deem the trust a type of fraudulent transfer and allow a creditor to reach the assets in the trust.

A properly established asset protection trust also stipulates that you permanently relinquish ownership and control of an asset. Before deciding on an APT, discuss your options with an Arizona trust lawyer.

Shield Your Assets with Help from an Arizona Trusts Attorney

After you’ve spent your career growing your wealth, an Arizona trust can help you and your family reap the benefits of your hard work. Contact Pennington Law, PLLC today for a free consultation with an experienced Arizona attorney to learn more about how to set up a trust in Arizona.