“Asset Protection Trusts Under Missouri Law” by Emily J. Bell

Many of our clients are concerned with protecting their assets from potential creditors, and we are often asked what planning techniques may afford such protection. Missouri law, as compared with other states, provides fairly generous protection to would-be debtors by endorsing “asset protection trusts”.
An “Asset Protection Trust”, or “APT”, is a trust that is protected from a beneficiary’s creditors—in other words, the trust assets are beyond creditors’ reach. Such protection can be had if the APT meets the requirements set forth under the Missouri Uniform Trust Code.
First, in order to be afforded such protection, the APT must be irrevocable. That is, once an APT is executed, it may not be amended nor terminated. This is very important, and is often times the “sticking point” for clients interested in this technique. Second, an APT must contain a “spendthrift” clause. This is a simple requirement to meet—the APT only needs to contain language to the effect that a beneficiary’s interest is held subject to a “spendthrift trust”.
Third, the APT must have more than one beneficiary. It is preferable that it be another current beneficiary, albeit a discretionary one. Many times, a client desires to create an APT for his or her own benefit.Missouri law permits these “self-settled” APTs, however, distributions to the settlor-beneficiary must be wholly discretionary, not mandatory. Otherwise, creditors can reach at least a portion of the trust’s assets. Additionally, the transfer of assets to an APT by a settlor-beneficiary may not be in fraud of his or her creditors. If a lawsuit has been threatened, for example, it is too late to create an APT to protect one’s assets.
Missouri law not only permits a settlor to create an APT for his or her own benefit, but also permits that same individual to serve as Trustee. Although this is permitted, it is not highly recommended, and we suggest that clients engage the services of a third-party Trustee. Finally, it is important to keep in mind that APTs are not a panacea. If the arrangement seems over-reaching, it probably is, and a more modest approach is usually best. On this point, we recommend that a client retain sufficient assets outside of the APT to continue to pay bills as they come due.We also advise clients to refrain from using assets transferred to an APT to qualify for a loan, as this constitutes fraud. It is important to be very careful in utilizing APTs to ensure that they comply with the Missouri Uniform Trust Code.
If you would like to discuss the potential use of an APT in your particular circumstances, please contact a member of the CECB Estate Planning Practice Group.