We use the 541 Trust® name to refer to an irrevocable asset protection trust built upon a foundation of generations of proven legal precedent. A 541 Trust® is a domestic, irrevocable, non-self-settled trust carefully designed to provide the best asset protection while at the same time affording maximum flexibility. The 541 Trust® is not a new school of thought nor is it based on foreign laws. We have carefully researched generations of legal precedent right here in the U.S. to find strategies that have always worked and design our trusts in compliance.
Assets owned by you are within reach of your creditors. Likewise, absent a fraudulent transfer, assets not owned by you cannot be reached by your creditors. If asset protection is a key goal in your estate planning, you must somehow remove the assets from your personal ownership. The best way to remove assets from your ownership is through the use of a properly crafted irrevocable trust. Because our trusts are drafted in compliance with U.S. laws, and are supported by generations of legal precedent, they provide the best possible protection.
Public policy and generations of legal precedent are clear: you cannot settle a trust for your own benefit and at the same time shield the trust assets from your potential creditors. Offshore Trusts and Domestic Self-Settled Asset Protection trusts (DAPTs) are self-settled, which is a fatal chink in the supposed armor of these types of trusts. Even though some states and offshore jurisdictions purport to allow self-settled asset protection trusts, it is important to see what the courts have made clear–the only court cases dealing with Offshore Trusts or DAPTs have shown that they fail to protect the assets.[i] Despite an abundance of promotion and marketing, self-settled trusts (DAPTs and Offshore Trusts) have zero wins when challenged in court. The Uniform Trust Code states that a creditor of a settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.[ii] In other words, if a settlor who is also a beneficiary has access to trust cash, property, vehicles, etc., so does a creditor. It is hard to argue that an Offshore Trust or a DAPT is the best solution based on their dismal record when challenged in court.
Generations of legal precedent have made clear that the only type of trust which has withstood the test of time as a proven method of asset protection is a non-self-settled trust (a.k.a. a third party trust or our 541 Trust®). This means that the settlor of the trust creates the trust for beneficiaries other than him/herself.[iii]
Our 541 Trust® protects assets from a person’s potential future liabilities by removing the assets from the person’s legal and personal ownership. Rather than employing new strategies which have not been tested or strategies which rely on the laws of foreign jurisdictions, the 541 Trust® is designed using methods which have been successfully tested in lawsuits, bankruptcy, and IRS audits in the U.S. legal system. The 541 Trust® has been proven to work better than offshore trusts and other asset protection strategies. Frankly, the name of the trust is of little importance. The important part of the 541 Trust® is its craftsmanship. Our years of experience and dedication to building trusts upon a tried and tested legal foundation is the key value to our asset protection trusts. After all, what good is a trust if it fails when challenged? The legal precedent speaks for itself.
[i] In re Mortensen, Battley v. Mortensen, (Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011), Waldron v. Huber (In re Huber), 2013 WL 2154218 (Bk.W.D.Wa., Slip Copy, May 17, 2013), Dexia Credit Local v. Rogan 624 F. Supp 2d 970 (N.D.Ill. 2009), 11 U.S.C. 548(e), More offshore self-settled trust cases HERE.
[ii] Uniform Trust Code Section 505, Restatement (Second) of Trusts Section 156(2), and Restatement (Third) of Trusts Section 58(2).
[iii] “By establishing an irrevocable trust in favor of another, a settlor, in effect, gives her assets to the third party as a gift. Once conveyed, the assets no longer belong to the settlor and are no more subject to the claims of her creditors than if the settlor had directly transferred title to the third party.” In re Jane McLean Brown, D. C. Docket No. 01-14026-CV-DLG (11th Cir. 2002).