Asset Protection Trusts

This type of irrevocable trust is often created to protect the beneficiary from the negative consequences frequently associated with transfer tax laws, divorce settlements and bankruptcy regulations. Each beneficiary owns an equitable interest in the trust assets but doesn’t actually hold legal title to any of the assets.


Establishing an asset protection trust can help insulate assets from creditor claims without violating laws and regulations against asset concealment and tax evasion. Any creditors seeking access to the beneficiary’s trust assets will be limited to the value of the beneficiary’s interest in the trust rather than the full value of the assets themselves.

Most asset protection trusts feature a spendthrift provision, which prevents the beneficiaries as well as future creditors (including former spouses) from directly accessing trust assets. Exceptions include cases where:

  • The creator of the trust is also a beneficiary (as in self-settled trusts, which are allowed in some states but not in others)
  • A debtor is the only beneficiary AND the only trustee of the trust
  • The trustee must satisfy a beneficiary’s child support obligations according to a court order
Advantages of South Dakota-based asset protection trusts
  • Asset protection trusts can be created in South Dakota for families who do not live in the state.
  • South Dakota allows trusts to continue in perpetuity, avoiding federal transfer taxes for generations.
  • The state does not impose any form of taxation (income, dividend interest, capital gains) on these trust assets.
  • Asset protection planning can be optimized thanks to the state’s self-settled trust and third-party discretionary trust statutes.
  • South Dakota is the only U.S. state that does not consider remainder interests, discretionary interests in third-party trusts or limited power of appointments as property interests.


Descriptions of trusts are intended to be informational and are not specific recommendations. Contact a trust officer at Sterling Trustees for more detailed information on what would be best suited to your circumstances.


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Sterling Trustees is a South Dakota-chartered trust company, regulated by the South Dakota Department of Banking. South Dakota, at the forefront of creating progressive trust legislation, is one of the country’s leading trust jurisdictions. That means that our company is able to help you leverage the latest and most advanced trust law available. read more