Alert! Michigan Adopts New Asset Protection Trust Law

Michigan Adopts New Asset Protection Trust Law

A few months ago, the Michigan legislature passed a new law that authorizes the establishment of Trusts which is a complete contradiction to various common law principles, in Michigan and most states, regarding creditor protection and Trust assets.

The Act is called the "Qualified Disposition and Trust Act" and limits its application and use to the following:

  • The Trust must be irrevocable.
  • The Trust must have a Michigan trustee (preferably a corporate trustee).
  • The interest in the Trust property retained by the person who creates and funds the Trust is limited to a discretionary interest or a support interest. That means that once the Trust is created, the right of the person creating the Trust to receive distributions is not without restriction. Distributions will be limited to funds necessary, in the trustee's sole discretion, for the beneficiaries' support and/or funds the trustee determines should be made.

Although the law allows for assets in the Trust to be protected from future creditors, the law does uphold the longstanding principle that this type of Trust cannot be used to defraud existing creditors. Specifically, the Trust cannot be created with a "fraudulent intent to hinder, delay or defraud any creditor."

This Trust is an excellent new tool for individuals who have high exposure to risks that may not be adequately covered by insurance, and the individual using this type of Trust has other assets and resources to live on so that the assets placed in the Trust are available should a worst-case scenario (such as a lawsuit) arise. One type of client for whom this type of Trust would be useful is any professional in an occupation of extreme risk or exposure to lawsuits. However, this type of Trust is not particularly suitable for a typical estate-planning client.

If you would like to learn more information regarding this new type of Trust and the law allowing for its use, please contact The Penning Group.