A trust is a legal entity created by a person known as the trustor, grantor, or settlor who owns assets (cash, stocks, bonds, real estate, art, jewelry, machinery, etc.) and transfers ownership of the assets to the trust—while directing a person or entity known as the trustee to hold and manage the assets for the benefit of a certain person or persons, or classification of persons (descendants) known as the beneficiary or beneficiaries. The assets or property in a trust are sometimes referred to by the Latin word res (pronounced “rays”).
Beneficiaries are often descendants or heirs of the trustor, grantor, or settlor, but in some states (and other countries) the trustor, grantor, or settlor may be the beneficiary—and in that case the trust is known as a self-settled trust.
A trust is generally created when a trustor, grantor, or settlor shows or manifests an intent to create a trust by signing or executing a written trust agreement that is also signed by the trustee.
Domestic Asset Protection Trust
An asset protection trust (APT) is a special kind of trust that is not recognized or allowed under the law in all states in the United States. In states that do recognize an APT, a trustor, grantor, or settlor may create the trust to protect assets from claims in divorce or bankruptcy, or by other creditors.
In states that do recognize an asset protection trust under state law—also known as a domestic asset protection trust (DAPT)—the trust generally must be irrevocable (not easily changed, if at all). A DAPT is usually a self-settled trust in which the trustor, grantor, or settlor is also the beneficiary of the trust.
Laws vary from state to state and may be changed by the state legislature or interpreted differently by the courts at any time, so you should be sure to confirm the status of the law in your state before making any decisions.
States that may recognize a DAPT include:
• Alaska
• Delaware
• Hawaii
• Michigan
• Mississippi
• Missouri
• Nevada
• New Hampshire
• Ohio
• Oklahoma
• Rhode Island
• South Dakota
• Tennessee
• Utah
• Virginia
• West Virginia
• Wyoming
Foreign Asset Protection Trust
A foreign asset protection trust—also known as an offshore trust—is a trust formed under the laws of another country. Foreign asset protection trusts usually cost more to create but may offer greater privacy protection and tax benefits. The protection against creditors offered by offshore trusts may vary depending on the country in which the trust is created.
In Texas, trusts are recognized as a means to manage and protect assets for beneficiaries. A trust is established when a trustor (also known as a grantor or settlor) expresses the intent to create it, usually through a written trust agreement, and appoints a trustee to manage the trust assets for the benefit of designated beneficiaries. While Texas law does not specifically provide for domestic asset protection trusts (DAPTs) that allow a trustor to be a beneficiary and protect assets from creditors, individuals often use trusts for estate planning and asset management purposes. It is important to note that the effectiveness of a trust in protecting assets from creditors can vary and may be subject to legal challenges. Texas residents may also consider foreign asset protection trusts, which are governed by the laws of the country where they are established, but these may involve additional costs and complexities. As trust laws can change and are subject to court interpretation, it is advisable to consult with an attorney to understand the current regulations and to ensure that a trust is properly established and administered in accordance with Texas law and the trustor's objectives.
