HELPING PEOPLE
Solve Life’s Puzzles

A special needs trust can protect certain government benefits. If you need assistance, contact Duncan Legal in Colorado today.

Everything You Need To Know About a Colorado Asset Protection Trust

 

Discover the benefits of the Colorado asset protection trust with Duncan Legal, PC. Safeguard your assets and secure your future. Contact us today for guidance.

What Is an Asset Protection Trust?

If you’re highly vulnerable to lawsuits or creditor claims due to the nature of your job or your social status, it is important that you take proactive steps to protect your assets from loss due to such actions. Asset protection trusts (APTs) are becoming increasingly popular as an asset protection planning strategy for people like you.

These trusts allow you to transfer legal ownership of your real estate or personal assets, such as your financial investments, to a third party (the trust). Because the assets are no longer in your name, they cannot be used to settle your creditors or any other financial liability you might incur. But you still get to use the assets for your benefit.

Asset protection trusts are heavily regulated in the states where they are permitted, and the scope of protection a person can get depends on the specific laws of the state where they are created.

If you’re considering creating an asset protection trust in Colorado, this guide explains how they work from a legal perspective to help you make an informed choice. Keep reading to learn more.

Benefits of Asset Protection Trusts

In addition to protecting your assets from your future creditors, asset protection trusts offer several advantages, including the following:

Confidentiality 

Trusts generally offer high levels of privacy since they are not public documents. As such, the details of an APT are confidential and are an appropriate tool if you prefer to keep your financial affairs private.

Probate Avoidance

Probate is a lengthy and costly legal process that a deceased person’s estate must pass through (in most cases) before it is distributed to their family members or beneficiaries.

With a properly structured APT, you can help your beneficiaries avoid probate in Colorado. That way, they can enjoy the assets you leave without stress when you’re no longer around.

Tax Benefits

An asset protection trust may offer shelter from estate and gift taxes when the trust assets pass to your beneficiaries after your death, depending on the trust terms.

If this is one of your goals, you can consult an estate planning attorney to help you understand what you must do to get this benefit.

Characteristics of Asset Protection Trusts

Asset protection trusts in the U.S. are also known as self-settled trusts. They are so-called because the settlor (trust maker) creates the trust primarily for their benefit, essentially settling it on themselves. The features of these trusts, as provided under their enabling laws across the states, generally include the following:

  • They must be created as irrevocable trusts, which, unlike a Colorado Revocable Trust, cannot be undone by the settlor (the maker) unless the law specifically allows it.

  • The settlor is usually the primary beneficiary of the trust.

  • They contain a “spendthrift” clause that prevents the transfer of trust assets or any payments from them to anyone other than the beneficiary.

  • They provide a specific timeframe within which the settlor’s creditors (if any ) can make a claim against the trust assets. If no claim is brought within that time, the creditor’s right to claim payment from the trust assets is extinguished.

  • The trust can only be used to avoid future creditor claims, not current ones. 

These features work together to secure the trust’s assets and prevent them from being claimed by third parties.

Asset Protection Trusts in Colorado 

Colorado law does not specifically provide for domestic asset protection trusts. Nevertheless, the state’s trust laws allow for the creation of trusts with some of the features mentioned in the previous section.

For instance, you can create an irrevocable trust with a spendthrift provision that prevents the voluntary or involuntary transfer of the trust assets to anyone other than the beneficiary. 

However, some provisions in the Colorado Revised Statutes limit the scope of asset protection you can get under such trusts. Some of these statutory limitations are explained below. 

Limitations of Asset Protection Trusts Under Colorado Law

Even though Colorado law allows settlors to create trusts with spendthrift provisions that prevent a creditor from accessing the trust assets, the law reduces the impact of such provisions by allowing some third parties to assess the trust property in several circumstances. 

Under the law, spendthrift trust provisions cannot be used against the following third parties:

  • A child who is the beneficiary of a child support order against the trust beneficiary

  • A judgment creditor who secured a judgment against the beneficiary for payment for the provision of essential services

A creditor who does not fall within the above categories may access distributions from the trust assets to the beneficiary by obtaining a court order. 

The law also allows creditors to assess distributions from the assets in an irrevocable trust made by a settlor if the distributions are for the settlor’s benefit. 

These exceptions substantially reduce the scope of asset protection that can be achieved with an asset protection trust in Colorado. 

Alternative Asset Protection Strategies in Colorado 

Colorado asset protection trusts may not offer you the desired level of protection. Still, there are other estate planning options and asset protection techniques that could help you secure your assets effectively.

For example, you could consider creating an offshore asset protection trust. These trusts are made under the laws of foreign jurisdictions/ countries. They can give you a level of privacy and protection that a domestic asset protection trust may not offer. 

If you are concerned with eliminating the difficulties and taxes associated with Asset Distribution after a person’s death, you can consider creating a perpetual trust, also known as a dynasty trust. This trust would allow your descendants and their descendants to enjoy your assets for many years to come, depending on the value of your estate. 

Some of these asset protection techniques are similar, and it could be difficult to tell which one suits your purposes. Before deciding on a specific one, consider consulting a skilled Estate Planning Attorney in Centennial, CO, who can assess your case and help determine which method is appropriate for your goals and situation. 

Secure Your Assets With Help From Trusted Estate Planning Attorneys at Duncan Legal, PC

Asset protection trusts in Colorado offer low levels of protection and may be inadequate to secure your assets against dissipation or loss due to third-party and creditor claims.

There are alternatives you can try from the several available asset protection strategies. But you need to pick the option that suits your circumstances and offers you the highest possible protection.

Our skilled attorneys at Duncan Legal, PC, can assess your case and help you create a personalized asset protection strategy that meets your unique needs and offers maximum security under the law.

So, if you have questions about your asset protection options in Colorado, do not hesitate to contact us. Let us help you secure your assets for the future.

Schedule an appointment immediately to get started.

Flat-fee options are available for wills, trusts and probate:

(720) 263-0706