My previous article, Got Creditors? New Michigan Trust Can Protect You
, introduced the Qualified Dispositions in Trust Act, under which a Michigan resident can create and fund a trust, continue to receive benefits from the assets transferred to the trust, and protect the assets from creditors, provided certain requirements are met. This article summarizes some of these requirements.
As the title of the Act indicates, it all starts with a “qualified disposition.” The person seeking asset protection (referred to as a “transferor” in the Act) must transfer property to a “qualified trustee” subject to a trust agreement under which the transferor has only rights that are permitted under the Act. A transfer is not a qualified disposition if the transferor is in arrears on a child support obligation by more than 30 days at the time of transfer. The transferor must sign an affidavit stating generally that the transferor is solvent and the transfer is not an attempt to defraud creditors.
The trust must have at least one “qualified trustee." An unrelated individual who is a Michigan resident is a qualified trustee, as is a bank or trust company. The qualified trustee must maintain some of the trust property and records in Michigan. The transferor cannot be trustee.
The trust must (i) be irrevocable, (ii) contain a spendthrift provision, and (iii) expressly incorporate Michigan law to govern the validity, construction, and administration of the trust. Irrevocable means the transferor must have no power, directly or indirectly, to amend or revoke the trust. A spendthrift provision prohibits a trust beneficiary, including the transferor, from voluntarily or involuntarily assigning any interest the beneficiary has in the trust.
The trust may grant the transferor the following rights:
- Direct investment decisions.
- Veto a distribution.
- Appoint the trust assets effective on the death of the transferor.
- Receive income.
- Receive principal under a discretionary or support provision.
- Remove a trustee and appoint a new trustee.
Prior to the Act, a Michigan resident needed a friend or trusted advisor residing in an asset protection trust state to avoid needing a corporate trustee and paying five digit annual fees (even where the trustee basically serves in name only). Under the Act, the ability to appoint a Michigan resident as trustee greatly enhances the appeal of asset protection trusts for Michigan residents.
Contact a Maddin Hauser attorney if you or someone you know has creditor concerns.