**Asset Protection Trust** (noun) — A trust structure specifically designed to protect assets from future creditors, lawsuits, or claims while allowing the person who created it to retain some benefit from those assets.
An asset protection trust is meant to put a legal barrier between your assets and anyone who might try to claim them—creditors, lawsuit plaintiffs, or others with potential claims against you. The assets belong to the trust, not to you personally, which can make them harder to reach.
These trusts work best when set up before any problems arise. Creating one after being sued or once creditors are circling usually doesn't work—that's called fraudulent conveyance and courts will typically undo it.
The effectiveness varies enormously by jurisdiction. Some places offer strong asset protection, others provide minimal shelter. Offshore trusts in particular jurisdictions offer more protection but come with significant complexity, cost, and reporting requirements.
⏱ When you'll encounter this term
Asset protection trusts are used by people in high-risk professions (doctors, lawyers, business owners) who worry about lawsuits, by those with significant wealth concerned about future claims, or by people with complex family situations wanting to protect assets for children from previous marriages.
Creating an effective asset protection trust requires sophisticated legal advice. Done poorly, it provides false security. Done well, it offers genuine protection while complying with all legal requirements. The trust must be legitimate—using it to defraud actual creditors or avoid legal obligations is illegal.
You'll encounter these trusts when dealing with complex estates, business succession planning, or divorce proceedings. They're controversial in some contexts, seen as responsible planning by some and as avoiding obligations by others. Legitimate asset protection planning is legal; fraudulent transfers are not.
**Related terms:** [Trust](/dictionary/trust), [Irrevocable Trust](/dictionary/irrevocable-trust), [Settlor](/dictionary/settlor)
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"Dad set up an asset protection trust for my disabled sister to preserve her disability pension eligibility while giving her financial security."