Q: I work in a profession that exposes me to potential liability. I have insurance, but what options does New Hampshire law provide for additional protection from creditors?
A: New Hampshire law provides opportunities for robust creditor protection compared with other New England states (and beyond).
New Hampshire is one of the few states that permit you to establish and fund a trust that can shield those assets from your creditors while allowing you to personally benefit from the assets you placed in the trust. This can be particularly helpful for high net-worth clients or those in high-liability professions like you. The trust must be irrevocable, contain a “spendthrift” clause, and should expressly appoint at least one qualified New Hampshire resident trustee (who cannot be you), and expressly state that New Hampshire law governs the validity, construction and administration of the trust.
A “spendthrift” clause is a provision in the trust agreement that provides that neither you nor any beneficiary may alienate or pledge their interest in the trust for the benefit of a creditor and that no one may attach or otherwise reach any interest of any beneficiary to satisfy a claim against the beneficiary.
When properly established, New Hampshire law bars creditor claims against the assets of an asset protection trust if the claim arises after the property was transferred in and the claim is brought after the 4th anniversary of the date of the transfer.
For claims arising prior to the date the property was transferred into the trust, the claim will be barred so long as there is no proof of intent to defraud a creditor pursuant to the Uniform Fraudulent Transfers Act when the transfer was made and if the creditor does not bring the claim within 4 years of the transfer, or if later, within 1 year after the creditor could have reasonably discovered the transfer.
Know that certain exceptions apply, including claims arising under antenuptial agreements or under child support orders, as a result of death, personal injury, or property damage occurring prior to the transfer of property into the trust if the harm is caused by the Grantor and certain pre-existing state and federal tax liens.
Before using this type of trust, it is important to consider the choice of trustee and whether there exist any known claims. A New Hampshire estate planning attorney can advise you on your options and help you determine if this type of trust is right for you.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.