Missouri Asset Protection Trust

missouri asset protection trust 

What is a Missouri Asset Protection Trust? 

A Missouri Asset Protection Trust (“APT”) is an irrevocable trust designed to provide the client/grantor with protection from the claims of future unknown creditors.  Traditionally, a client could not set up a trust for his or her own benefit and have the trust assets protected from the client’s creditors.  However, in a Missouri APT, the grantor/client is permitted to retain a beneficial interest in the trust.  

 When Should You Consider A Missouri Asset Protection Trust? 

          Many people are concerned about the rise in litigation in our country and recognize that advanced planning is needed in order to protect the wealth that they have accumulated during their lifetime.   Candidates for a Missouri APT vary and may include professionals who are exposed to litigation risk (doctors, lawyers, engineers, architects, actuaries and accountants), entrepreneurs, business owners, and those who serve as officers or on a board of directors of a company (including charitable organizations).  Missouri APTs are not appropriate for anyone trying to avoid the claims of current creditors.  The worst possible candidate for asset protection planning is a person who is currently involved in litigation or is about to incur a large obligation and wants to hide assets to avoid satisfying their debt.

 What are the Benefits of a Missouri Asset Protection Trust? 

A Missouri APT allows a client to place assets in an irrevocable trust beyond the reach of future creditors while still retaining certain interests in, and powers over, the trust. Missouri imposes certain limitations, such as a period of time (generally four years) during which creditors can challenge transfers to the trust as being fraudulent. Therefore, individuals transferring assets to a Missouri APT must be prepared to show that the transfer was not fraudulent.  In addition, claims such as alimony, and child support are exempt from creditor protection for public policy reasons.

                              How the Missouri APT is Created and How It Works. 

         The mechanics of creating a Missouri APT are straightforward. The trust must be established in Missouri.  The trust must be irrevocable; appoint at least one qualified trustee (must be a resident of Missouri or entity authorized to act as trustee within the state); contain a spendthrift clause (prohibits assignment and attachment of a beneficiary’s interest in the trust); appoint additional beneficiaries other than the client (i.e. spouse, children and grandchildren); and be governed by law of the Missouri. The grantor/client cannot serve as the trustee of the Missouri APT. The Missouri APT provides that the grantor/client and other beneficiaries named in the Missouri APT (typically family members) can receive as much of the income or principal from the Missouri APT’s assets in the discretion of the trustee.  

                           How is the Trust structured for tax purposes? 

                 A Missouri APT can be structured in a number of ways for income, gift and estate tax purposes, depending on the client’s goals. For example, the trust can be structured as a completed gift in an attempt to place the assets, and any growth of the assets, outside of the grantor's/clients taxable estate. Alternatively, the trust can be established with no gift tax consequences to preserve the grantor's lifetime gift tax exemption. This will cause the inclusion of the trust assets in the grantor's/client’s estate for estate tax purposes. For income tax purposes, the trust may be a grantor trust or, depending on the distribution terms, the trust can be a separate tax entity and may be established to avoid state income tax. The ultimate makeup of the trust will depend upon the grantor's/client’s overall wealth transfer, income and estate planning goals. 

                  Can the Grantor/Client Serve as Trustee of the Missouri APT? 

        The Missouri Revised Statues do not expressly prohibit the client from serving as Trustee; however, it is never a good idea for the client to serve as the distribution Trustee of the Missouri APT. The Missouri APT can allow separate the roles and responsibilities associated with a trust among various parties.  For example, the Missouri APT may appoint a “distribution trustee”, “investment trustee”, and “administrative trustee” in the Missouri APT with the authority to direct distributions to the beneficiaries, or the investment of trust assets, or the administrative functions of the trust, respectively.  This type of structure allows the client to appoint an “administrative trustee” in the Missouri APT (to access the benefits of the Missouri APT state law) while appointing one or more separate trustees that may be located outside of the state.  The “administrative trustee” is responsible for filing any tax returns for the Missouri APT and maintaining the books and records of the Missouri APT in Missouri.  The “investment trustee” is given the sole authority to invest the Missouri APT’s assets.  The grantor/client may serve as the investment trustee, or the client can appoint any other individual or professional advisor to serve as the investment trustee.  The client should not, however, serve as the distribution trustee of the Missouri APT.  

            I do not want to lose control over my assets.  How can I retain more control? 

        If the client/grantor wants to retain more control over their assets without compromising the level of their asset protection, a client can form a limited liability company (“LLC”) or Family Limited Partnership (“FLP”) to hold the family assets that the client wishes to protect.  The client can be the manager (or general partner in the case of an FLP) of the LLC.  The membership interest (ownership) of the LLC would be held by the Missouri APT.  This structure allows the client to maintain management control of the assets while protecting the membership interest from a potential charging order or foreclosure.  This structure is an excellent strategy that provides significant asset protection without diminishing the client’s level of control over the assets.  

         Other Things to Consider. 

                     To date, the Missouri APT, by itself (without the use of an LLC or FLP to hold the family assets) has not been tested in the U.S. courts, and a Missouri APT may be susceptible to being set aside pursuant to a judgment obtained outside of the Missouri APT jurisdiction.  Despite this uncertainty, Missouri APTs continue to grow in popularity as the alternative to foreign asset protection trusts.  Clients and their advisors must weigh the potential benefits of a Missouri APT against the outstanding issues regarding their effectiveness. A Missouri APT should be evaluated as part of a client’s overall financial and wealth transfer goals.  A Missouri APT can be structured in a number of ways to facilitate income, gift and estate tax planning.  For all of these reasons, it is essential that anyone considering a Missouri APT consult an attorney who specializes in this area. 


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