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Domestic asset protection trusts and prenups

Georgia couples who are contemplating marriage may discuss the prospect of getting a prenuptial agreement. While this contract can help put provisions in place in case the couple later decides to get a divorce, a prenuptial agreement is not the only device that can provide protection.

Another option is a domestic asset protection trust. Unlike a revocable trust, a domestic asset protection trust cannot be revoked. However, it allows for a person to be the discretionary beneficiary. This designation permits the trustee to be protected from claims of his or her creditors. Because a revocable trust allows a grantor to modify it, terminate it and reach the trust assets directly, creditors can step into the grantor's shoes in order to also reach the trust assets.

This special arrangement allows the grantor to be a beneficiary and receive protection for his or her assets, including protection from a divorcing spouse. Domestic asset protection trusts are becoming increasingly common during the premarital planning process. This is because forming a domestic asset protection trust that is created during the marriage itself can raise red flags if it is perceived as as fraudulent transfer. However, creating this type of trust before the marriage allows a soon-to-be spouse to form a contingency fund in case the marriage does not work out. There can be a seasoning period after the trust is created, depending on state law.

Individuals who are contemplating marriage and who want to protect their assets may consider establishing a trust of this nature. Additionally, they may decide to consult with a family law lawyer to create a prenuptial agreement in addition to also creating a domestic asset protection trust.

Source: Forbes, "How To Protect Yourself In A Divorce Using A Domestic Asset Protection Trust", Robert Pagliarini , May 15, 2014

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