Although you cannot create a trust for yourself with the goal of asset protection, you can create a trust for someone else with asset protection in mind. And these protections can come in two forms. The assets can be protected from potential poor money management skills by the beneficiary of the trust. Likewise, these assets can be protected from creditors, law suits etc.
To help protect the assets from poor money management skills of a beneficiary, the trust merely needs to name a trustee as someone other than the beneficiary. Since the trustee is the only person who makes decisions about the assets within the trust (while following the wording of the trust of course), then the beneficiary never gets the opportunity to mishandle the assets that are still within the trust.
Maybe the beneficiary loves buying new, expensive cars, or has a gambling problem, or whatever. Or perhaps the beneficiary is merely too young to handle larger sums of money at this time. Whatever the reason, you can help make sure that the funds in the trust last a lot longer by appointing a trustee with better decision-making skills.
For asset protection from creditors, lawsuits and the like you can create what is called a spendthrift trust. As was already mentioned, this trust would appoint someone other than the beneficiary as the trustee. But there would also need to be some simple wording in the trust that indicates that you intended that the trust be a spendthrift trust.
When you create a spendthrift trust the creditors of the beneficiary cannot go after the assets in the trust itself. For example, if the beneficiary goes out and buys a brand new Corvette and gets behind on payments, the car loan people can’t go after the assets in the trust to pay off the loan. Another example would be if the beneficiary gets sued and loses in court, then whoever sued the beneficiary could not go after the assets in the trust in order to get paid for the settlement from the lawsuit.
And by the way, there’s no need to be able to prove that someone is bad with money in order for them to be a beneficiary to a spendthrift trust. So as you might imagine, creating a spendthrift trust can be a good idea even if the beneficiary is actually really good with handling his or her finances. They get to benefit from the assets within the trust via incremental payouts by the trustee, and they likewise get to greatly benefit from the asset protection derived from having the assets be held in a spendthrift trust.
A spendthrift trust is a fantastic estate planning tool that just about anyone should consider, and it can be easily incorporated into your will if you choose to create one that way.