One of the most powerful benefits of estate planning is protecting assets — not just from estate taxes, but also from creditors, lawsuits, divorces, and even long-term care costs. A well-drafted trust can be a critical tool in an asset protection plan, helping individuals and families safeguard wealth across generations.
Below, we break down different types of trusts commonly used in asset protection planning — along with real-life examples of how they work.
1. Revocable Living Trusts (RLT) & Will Subtrusts
Best for: Protecting inheritances after your death
While a Revocable Living Trust (RLT) does not protect assets from your own creditors during your lifetime, it can be structured to protect what your beneficiaries inherit after you pass away. Subtrusts created under a will or RLT can shield a beneficiary’s inheritance from their creditors, lawsuits, or even a divorcing spouse.
This kind of planning is a smart, often overlooked way to create a lasting financial safety net for future generations.
Example:
→ Maria creates an RLT that leaves assets to her children in a “lifetime trust.” If her daughter later gets divorced or sued, the inherited assets stay protected in the trust, out of reach from ex-spouses or creditors.
2. Irrevocable Gifting Trust
Best for: Transferring assets during your lifetime while protecting them from beneficiaries’ creditors
An Irrevocable Gifting Trust allows you to make gifts to loved ones but keep those assets protected from their financial risks.
Example:
→ James gifts investment property to an Irrevocable Gifting Trust for his adult children. If one child is later sued due to a business dispute, the trust assets remain protected.
3. Spousal Lifetime Access Trust (SLAT)
Best for: Married couples seeking asset protection with indirect access to assets
A SLAT allows one spouse to transfer assets to an irrevocable trust for the benefit of the other spouse — protecting assets from creditors while preserving indirect access through the beneficiary spouse.
Example:
→ David transfers $1 million into a SLAT for his wife, Emily. If David is later sued or faces financial trouble, the assets in the SLAT are protected — but Emily can still receive distributions for the couple’s lifestyle.
4. Irrevocable Life Insurance Trust (ILIT)
Best for: Protecting life insurance proceeds from taxes and creditors
An ILIT owns a life insurance policy outside of your estate, preventing it from being subject to estate taxes and shielding the death benefit from creditors.
Example:
→ When Sandra passes away, her ILIT collects $2 million from her life insurance policy — fully protected from estate taxes and creditors. The funds pass directly to her children.
5. Domestic Asset Protection Trust (DAPT)
Best for: Individuals in states that allow self-settled asset protection trusts
A DAPT is an irrevocable trust that allows you to transfer assets while retaining potential discretionary benefits. It provides strong creditor protection under certain state laws.
Example:
→ Michael establishes a DAPT in Nevada to hold investment accounts. Even if he’s later sued, assets in the DAPT are protected (subject to state law requirements).
6. Medicaid Asset Protection Trust (MAPT)
Best for: Protecting assets from nursing home costs and Medicaid spend-down
A MAPT is a specialized irrevocable trust used in elder law planning to protect assets while planning for Medicaid eligibility.
Example:
→ After transferring her home to a MAPT and waiting out the Medicaid look-back period, Linda qualifies for Medicaid benefits while ensuring her home passes to her children.
7. Medicaid Family Protection Trust (MFPT)
Best for: Families needing enhanced Medicaid and beneficiary protection
An MFPT is a pre-structured version of the MAPT that offers additional built-in protections for both the grantor and future beneficiaries.
8. Veterans Asset Protection Trust (VAPT)
Best for: Veterans seeking to preserve assets while qualifying for VA pension benefits
A VAPT separates assets into subtrusts to prevent them from being countable for Veterans benefits eligibility.
9. Third-Party Supplemental Needs Trust (TPSNT)
Best for: Protecting benefits eligibility for loved ones with special needs
A TPSNT allows family members to set aside assets for a loved one with disabilities without jeopardizing their eligibility for public benefits.
10. Self-Settled Special Needs Trust (SSSNT)
Best for: Protecting a disabled person’s own assets while preserving government benefits
An SSSNT is funded with the beneficiary’s own assets (such as lawsuit settlements) and requires a Medicaid payback provision after their death.
Final Thoughts: The Right Trust for the Right Situation
Asset protection planning is not one-size-fits-all. The right trust depends on your specific goals, family dynamics, and potential risks. Whether you’re concerned about protecting your children’s inheritance from divorces, shielding assets from lawsuits, or preserving wealth from long-term care costs — there’s likely a trust that fits your needs.
Ready to Protect What Matters Most?
We help individuals and families design customized asset protection plans using trusts and other legal tools. Contact us today to discuss your options and create a strategy tailored to your unique goals.