Self-Settled Trusts
a/k/a Asset Protection Trusts

Self-Settled Trusts are commonly known as Asset Protection Trusts, or APTs, for short. These are spendthrift trusts that the settlor forms for his or her own benefit, i.e., the settlor is a beneficiary as well as the settlor. The idea is that the Settlor can convey assets to the trust, and that after the conveyance the assets will be protected from creditors and spouses of the Settlor.

For public policy reasons (primarily the quite reasonable concept that people should be responsible for their debts), most U.S. states have chosen not to recognize self-settled spendthrift trusts. A common example is Oklahoma §60-175.25(H) which provides that:

Nothing in this act shall authorize a person to create a spendthrift trust or other inalienable interest for his own benefit. The interest of the trustor as a beneficiary of any trust shall be freely alienable and subject to the claims of his creditors.

Foreign Asset Protection Trusts (FAPTs)

The offshore tax and debtor havens have long offered trust statutes that allow self-settled spendthrift trusts. These statutes, and the handful of cases considering such trusts formed by U.S. settlors pursuant to these statutes, are considered in our Foreign Asset Protection Trusts section. Because the track record of FAPTs when tested in court have been nothing short of disastrous, these structures should be avoided by U.S. settlors in all except the most rare of circumstances. Section includes Analysis of Foreign Asset Protection Trusts, Foreign Trusts Statutes, and Cases Involving Foriegn Asset Protection Trusts.

Domestic Asset Protection Trusts (DAPTs)

To attract financial business and compete with offshore trusts, a few U.S. states have amended their trust statutes to now allow self-settled spendthrift trusts. These are considered in our Domestic Asset Protection Trusts section. As will be shown, these DAPTs have significant potential defects such that they should be avoided until their benefits are actually established in court, and not just in the marketing materials of those hyping these structures. Section includes Analysis of Domestic Asset Protection Trusts, Domestic APT Statutes, and Cases Involving Domestic Asset Protection Trusts.

Self-Settled Trust Terms

• Self-Settled Spendthrift Trust
  A trust formed for the benefit of the person who created the trust, with spendthrift provisions that attempt to disallow a creditor from invading the trust assets or forcing a distribution to the beneficiary that the creditor would then seize.

• Domestic/Offshore Trust – See “Killer Rabbit Trust”

• Fleeing Trust – See “Killer Rabbit Trust”

• Flight Trust – See “Killer Rabbit Trust”

• Killer Rabbit Trust
  An asset protection trust created initially as a domestic trust, with the idea that if a serious problem arises the trust will migrate to an offshore jurisdiction where its assets will be protected from creditors. Planners who form these trusts theorize (perhaps “wish” is a better term) that U.S. judges will treat these trusts better than foreign asset protection trusts that were formed offshore in the first place. The somewhat derisive but apt nickname for this type of trust derives from the scene in Monty Python’s The Holy Grail where King Arthur’s men confront a harmless bunny rabbit, and then flee shouting “Run Away! Run Away!” when the bunny turns vicious. Also sometimes referred to as a “Flight Trust” or “Fleeing Trust” or “Domestic/Offshore Trust (DOT)”.

The efficacy of foreign asset protection trusts and their planning limitations