Tennessee residents who own a farm, a business, or work in a profession that presents some risk for litigation may worry about guarding their assets from creditors. If you have concerns about lawsuits eating up your money or taking away your property, options exist to protect your assets. One option, an asset protection trust, can serve this purpose, although it must meet certain requirements to do so.
The Motley Fool explains how an asset protection trust works. You would set up a trust and then transfer your ownership of your property or cash to a trustee. Once the change in ownership is complete, the trustee is in charge of taking care of your assets. The idea is that since you are no longer the owner of the assets, creditors will have a much harder time laying claim to them.
However, in order for an asset protection trust to work for you, it needs to be an irrevocable trust. While people who set up revocable trusts retain significant control over them, modifying an irrevocable trust is very difficult by comparison. So creating an asset protection trust requires special care and consideration in the planning stages so that it functions as its creator wishes.
Timing may also be a factor. You want your assets in the trust before you run into trouble with creditors. If you have transferred your assets to a trust and some time passes before creditors levy claims against you, a court will likely have no problem upholding your trust. However, if you try to transfer ownership after you start facing creditor claims, a court might not allow the transfer to proceed.
Not every state permits its residents to set up an asset protection trust, but Tennessee does allow it. So homeowners, farmers, business owners, or other state residents with assets to protect may consider an asset protection trust, though complying with state law is crucial for a protection trust to succeed. If an asset protection trust is not right for you, you may entertain other trusts like totten trusts or specialized trusts.
Since the asset needs of people will vary, do not read this article as a substitute for the advice of an estate planning attorney. This article is only intended as general information.