Missouri Asset Protection (“MAP”) Trusts

Missouri Asset Protection (“MAP”) trusts are a type of irrevocable trust. As the name suggests, a MAP trust is designed for asset protection. In sum, a MAP trust, like most irrevocable trusts, requires a settlor to sacrifice control in exchange for asset protection.

Historically, the United States has been unfriendly to asset protection trusts. For many years, individuals attempted to use foreign / offshore asset protection trusts in order to shield assets from creditors. However, beginning in 1997 with Alaska, jurisdictions in the United States began to permit Domestic Asset Protection Trusts (DAPTs). Roughly 20-30% of states now allow DAPTs. Missouri began permitting DAPTs in 2005, although the enacting legislation is retrospective. Missouri’s form of DAPT is called the Missouri Asset Protection (“MAP”) trust.

As with a revocable living trust, an irrevocable trust is created by a settlor, who may also be a beneficiary of the trust. However, a critical difference with an irrevocable trust is that the settlor / beneficiary may not also be the trustee. In other words, the settlor must give up control of assets held and managed by the trust. Missouri is unique in that many states do not allow the settlor to also be a beneficiary of the trust, even if the settlor is not also the trustee.

There are additional limitations. The settlor cannot be the sole beneficiary of the trust, and the settlor cannot reserve himself or herself a guaranteed interest in principal or income from the trust. It is also more difficult to amend or revoke an irrevocable trust in general, and the settlor / beneficiary is prohibited from amending or revoking the trust.

Why do people create MAP trusts? The primary reason is asset protection. Professionals, such as doctors and lawyers, as well as business owners, may desire an additional level of protection from lawsuits beyond the protection provided by appropriate business formation (e.g. corporation or LLC), insurance policies, and tenancy by the entirety (i.e. marriage).

How does a MAP trust achieve this goal? The key is the spendthrift provision. A spendthrift provision gives the trustee complete discretion in the distribution of trust property. In other words, the trustee may distribute as much or as little in the way of distributions to the beneficiary as the trustee deems proper. Since the beneficiary technically has no guaranteed principal or income from the trust, creditors of the beneficiary technically have nothing to seize. With a spendthrift provision, the assets held by the trust will generally not be attachable by creditors.

However, it is important to note that a MAP trust is not a “silver bullet” for asset protection. If you have litigation pending, it is too late for a MAP trust to help you. In fact, even if you do not have litigation pending, there is a multi-year “look back” period during which a court will allow a creditor to challenge transfers to a MAP trust as fraudulent transfers. In Missouri, this period is typically four years, although it can be as long as ten years in a bankruptcy proceeding. In short, in order to be effective, a MAP trust must be established well in advance of any claims of creditors.

Additionally, there are certain exceptions to a spendthrift provision of a MAP trust set by statute. For instance, a MAP trust can never protect assets from alimony / maintenance or child support, even with a spendthrift provision.

If you have additional questions about Missouri Asset Protection (“MAP”) trusts or are ready to have one prepared, call or come visit with the estate planning attorneys at the Paul Law Firm. Consultations are always free!