Asset Protection Trusts – FAQs (Frequently Asked Questions)

Q: What is an asset protection trust?

A: An asset protection trust (APT) is a legal instrument also known as a “self-settled” trust because it is created by the party it benefits. Such a trust protects any assets in it (money or real estate) from the future claims of creditors or litigation, unlike traditional grantor trusts that do not provide this protection. We recommend anyone considering an asset protection trust consult with a trust attorney first.

Q: Are APTs new?

A: No, but they are new this year in Tennessee. A form of APT has been available since 1997 in Delaware. Since then, seven other states, including Nevada, Alaska and South Dakota, have made some form of APT available. In 2007, Tennessee lawmakers passed legislation making the state the ninth to offer asset protection trusts effective July 1.

Q: Why did Tennessee create APTs?

A: Tennessee already had a reputation as a trust-friendly state due to its passage of the Uniform Trust Code, which grants certain rights to beneficiaries with trusts. When legislators saw how much money (some $100 billion) was being placed in APTs in states that have them, they felt there was a need for such an instrument in Tennessee.

Q: Who should use an APT?

A: Traditionally, people whose occupations expose them to risk of litigation have been attracted to APTs. However, everyone, regardless of occupation or net worth, is exposed to liability, so any person with sizable assets can benefit.

Q: For what other reason might I consider an APT?

A: Some high net worth families use APTs as a way of protecting family wealth in the event of a divorce or remarriage.

Q: When can I establish one?

A: As of July 1, you may establish an APT in Tennessee. However, the assets you place in it are subject by law to a four-year waiting period before they are protected.

Q: What is the cost?

A: Cumberland Trust’s fee schedule is very competitive. See Cumberland Trust’s rate sheet for full disclosure of all fees associated with an asset protection trust.

Q: What’s the minimum amount of money I need to deposit?

A: You can put any amount of assets in an APT. However, Cumberland Trust does not recommend putting all of one’s assets in it.

Q: Can I get access to the money while it is in trust?

A: Yes, you may arrange to get distributions from the trust. You may also direct the investments in the trust.

Q: Can I be my own trustee?

A: By law, you cannot be your own trustee and must appoint a corporate trustee authorized to do business in Tennessee, or a third party individual who resides in Tennessee.

Q: I have family members out of state. Can they also create their own APTs here?

A: Yes, a resident of any other state can set up an APT in Tennessee.

Q: What are the other caveats?

A: Besides the four year waiting period, you must sign an affidavit stating that you are not trying to avoid a legitimate creditor, or one with a claim currently pending.

Q: Why should I set up an APT with Cumberland Trust?

A: Cumberland Trust is an objective, professional, regulated independent trust company. We bring to the table many combined years of experience in working with financial and legal advisors to carry out the terms of your trust.

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