As attorneys practicing in Texas, we have seen many clients who have been subject to lawsuits, judgments, and creditors trying to take away their hard-earned assets. Unfortunately, many people do not realize that they can use a trust to protect their assets from such situations. Read on to learn about how trusts work and how Texas law protects assets placed in trusts, and to see examples of real cases where trusts were used to protect assets.
What is a Trust?
A trust is a legal entity that can hold assets on behalf of a beneficiary. The person who sets up the trust is known as the grantor or settlor, and the person who receives the benefits of the trust is known as the beneficiary. The grantor appoints a trustee to manage the assets in the trust and distribute them to the beneficiary according to the terms of the trust document. The trustee has a fiduciary duty to act in the best interests of the beneficiary.
There are several different types of trusts, including revocable and irrevocable trusts. Revocable trusts allow the grantor to retain control over the assets in the trust and can be changed or revoked at any time. Irrevocable trusts, on the other hand, cannot be changed or revoked once they are established.
How Does Texas Law Protect Assets Placed in Trusts?
Texas law provides strong protections for assets placed in trusts. Section 112.035 of the Texas Property Code states that a creditor cannot reach the assets of a trust if:
● The trust is irrevocable;
● The trust has a spendthrift provision;
● The trust is not subject to a power of withdrawal by the grantor;
● The grantor is not also a beneficiary of the trust.
Additionally, Texas law provides that a creditor cannot set aside a transfer of assets to a trust if the transfer was made more than two years before the creditor’s claim arose and the transfer was not made with the intent to defraud the creditor.
Cases Involving Trust Protections of Assets
There have been several cases in Texas where trusts have been used to protect assets from creditors and lawsuits. Here are a few examples:
● In the case of In re Marriage of Stacy and Jeffery Scoggins, a Texas appeals court ruled that a trust established by Jeffery Scoggins was not subject to division in his divorce from Stacy Scoggins. The trust was irrevocable, had a spendthrift provision, and Jeffery was not a beneficiary of the trust.
● In the case of In re M.M.C., a Texas appeals court ruled that a trust established by a grandmother for her grandchild was not subject to attachment by the grandchild’s creditors. The trust was irrevocable, had a spendthrift provision, and the grandmother was not a beneficiary of the trust.
● In the case of In re Texas Pig Stands, Inc., a bankruptcy court ruled that a trust established by the owners of a restaurant chain was not subject to the claims of the restaurant’s creditors. The trust was established more than two years before the bankruptcy, and the owners had no intent to defraud their creditors.
From the examples provided above, you can see how a trust can be useful in a variety of legal circumstances. The key to getting the full benefit of a trust is not only the terms of the trust but how long ago the trust was created. The court is on the lookout for persons who try to use trusts to get around paying creditors. How the further back in time (i.e., two years or more) the trust was created, the less likely the court will find the intent of the trust to avoid paying creditors.
How to Use a Trust to Protect Your Assets
If you are concerned about protecting your assets from creditors and lawsuits, a trust may be a good option for you. Here are some steps you can take to set up a trust:
- Determine the type of trust that is best for your situation. This will depend on your specific goals and needs.
- Choose a trustee who you trust to manage the assets in the trust and act in the best interests of the beneficiary.
- Contact the Kazi Law Firm to draft a trust document that specifies the terms of the trust, including the beneficiaries, the assets to be included in the trust, and the rules for distributing those assets.
- Fund the trust by transferring assets into it. This may include real estate, stocks, and other investments.
- The Kazi Law Firm will ensure that the Trust complies with Texas Law.
Why Choose the Kazi Law Firm to Assist with Your Trust?
The Kazi Law Firm is a trusted source of legal advice for individuals and businesses throughout Texas. Our experienced attorneys have helped countless clients protect their assets through the use of trusts and other estate planning tools. We understand the unique needs of each of our clients and work closely with them to develop a personalized plan that meets their specific goals and needs.
We also have extensive experience working with Texas law and can ensure that your trust complies with all legal requirements. In addition, we offer ongoing support and advice to help you manage and update your trust as your needs change over time. So contact us now; we want to help you to protect the assets you worked so hard to acquire.