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Sudden Wealth Blog

The Second Pillar of Asset Protection

The Second Pillar of Asset Protection is this: Creditors Cannot Limit How You Use and Enjoy Your Assets. Protecting your assets does no good if you cannot actually use those assets. Captain Flint, the fictional character of Treasure Island, protected his assets by burying them on an island so no one could find them. He also did not have the use and enjoyment of those assets. Neither did his family. While burying your wealth may be effective to protect assets, that’s probably not what you want.

You want BOTH to protect your assets from creditors, AND to be able to use and enjoy those assets. The problem is that very few “asset protection solutions” actually provide both of these components. That’s the reason for the Second Pillar of Asset Protection – so you can see what “asset protection solutions” actually work, and which don’t.

Do Self-Settled Asset Protection Trusts qualify under the Second Pillar of Asset Protection?

Short answer: No.

Self-Settled Asset Protection Trusts are very popular these days. They are heavily marketed on the internet. There are two different types: (1) the Domestic Asset Protection Trust (“DAPT”) and (2) the Offshore Trust, aka Foreign Asset Protection Trust (“FAPT”). There are currently 19 states that permit some version of an Asset Protection Trust. And that number will probably continue to grow. The problem is that all of the relevant court cases indicate that if asset protection is your goal, you should find a different solution.


What is a Self-Settled Trust?

Every trust agreement has three types of people. The Settlor (or Grantor) is the one who signs and funds the trust. The Trustee is the person who holds legal title to the money or property in the trust. And the Beneficiary is the person for whose benefit the trust money or property is being held.

With a Self-Settled Trust, the Settlor and the Beneficiary are the same person. That sounds pretty appealing. The promise is that you can create a trust with your money, and you can still be the beneficiary; however, your creditors can get access to the money in the trust.

The problem with Self-Settled Trusts

The problem is that generations of case law demonstrate that Self-Settled Trusts does not protect the beneficiary from creditors in the majority of states that do not permit them. Plus, even in the states that permit Self-Settled Trusts, the trust assets are only protected in bankruptcy if the trust is more than 10 years old.

What kind of protection is that?!? Imagine buying a new roof for your house only to learn that it only becomes rainproof after 10 years. Or getting auto insurance only to learn that you need to keep it in place for 10 years before you will have coverage. But that’s the promise of Asset Protection Trusts.

A better type of trust is called a Special Power of Appointment Trust

There is a trust backed by 200 years of case law and supported by the statutes of every state: the Special Power of Appointment Trust. Our law firm’s version is called an Asset Vault Trust. Here are the characteristics:

  1. The settlor is not a beneficiary, and the trustee can make no distributions to or for the settlor’s benefit.
  2. The settlor retains a “special power of appointment” that allows the settlor to change the trustees, the beneficiaries, or the terms of the Asset Vault Trust at any time (except that the assets cannot be distributed to or for the settlor’s benefit). In addition, the settlor can appoint assets to any other person at any time.

Creditors have no claim against the Asset Vault Trust because no distributions can be made for the settlor’s benefit. The court cases and statutes in every state demonstrate that these powers of appointment do not give creditors any claim against the Asset Vault Trust. There are no statutes, cases, secondary sources or commentaries to the contrary.


The only complaint that some commentators have is that the settlor cannot be the beneficiary. So how can the settlor get assets out of the trust? Keep reading.

How can protect your assets from creditors, while also being able to use and enjoy those assets?

Borrow from the Asset Vault Trust

You can sign a promissory note with the Asset Vault Trust, secured by your personal assets and personal income. That offers further protection on the assets that are not in the trust. It also provides the possibility of protecting your wages from garnishment if  the Asset Vault Trust sues you and gets a “friendly” judgment against you.

“Appoint” the trust assets to someone

If you have a close family member or friend that you trust, you can transfer some money to that person using the Power of Appointment.

Have the Trust Protector add you as a beneficiary

If you ever want to unwind the trust, you can have the Trust Protector add you as a beneficiary. Then you can simply have the trustee transfer the trust assets back to you.

If you want proven, effective asset protection, contact us now.


Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.