Based on new Michigan law, as an individual, you can now create a "Self-Settled Asset Protection Trust." This new law was signed into effect in December of 2016.
Although an Asset Protection Trust under the new law may be very beneficial for certain individuals, it doesn't mean that this type of planning is right for everyone. There are limits. One limit is that transfers of property from individuals to Asset Protection Trusts must be done in a manner that does not create a "fraud on creditors." In fact, the standard to be imposed under the new law is that an Asset Protection Trust may not be funded with the "actual intent to hinder, delay or defraud any creditors." Another aspect that must be part of an Asset Protection Trust is that any beneficial interest the creator of the trust reserves must be for "discretionary or support interest." This means that the person creating the Asset Protection Trust is ultimately giving up a great deal of control over the assets to be transferred to the trust.
In the course of my practice, I often encounter clients who are very concerned about potential liability based on their professional careers or the type of the business they operate. Initially, I always discuss and emphasize with clients who fear being sued that they should have the right type and adequate amount of insurance in place. I also emphasize that the clients review the insurance policy with their insurance professionals to make sure that there are no obvious or critical exclusions of coverage that, in effect, make the policy inapplicable to the very situations that the client is worried about as far as incurring liability from third parties.
However, insurance is not always the answer to secure a client against potential liability. While insurance companies love to collect premiums, they are not so excited to pay claims on policies.
As a result, some clients may find the new Asset Protection Trust a viable alternative and/or additional planning tool to protect their assets from liability. These types of clients would typically be those who have significant wealth and have significant risks of being sued. Doctors and some business owners come to mind. Otherwise, people should be very cautious before putting their money in irrevocable trusts and limiting the access and benefits from the assets placed in the trust.
The level of planning involved with considering the aspects of Asset Protection Trusts and whether or not to utilize them as part of one's estate plan is complex and should be discussed with a qualified advisor. That being said, there is a now a new weapon in the asset protection arsenal under Michigan law.