Asset Protection Trusts: Trust Law’s Race to the Bottom?

A number of offshore jurisdictions, joined recently by two American states, have enacted legislation permitting trust settlors to create trusts in which settlor may retain a beneficial interest while shielding that interest from the settlor's creditors. Because the costs of such legislation are felt largely outside the enacting jurisdiction while the benefits are concentrated within that jurisdiction, jurisdictional competition threatens to generate a "race to the bottom." After examining the conditions that have led to this race to the bottom, the article suggests that a variety of established doctrinal rules - ranging from choice-of-law principles to bankruptcy statutes - constrain the race to the bottom by restricting the advantages trust settlors may realize from creating asset protection trusts.