What Is an Asset Protection Trust?

An asset protection trust (APT) allows people to separate their personal estate property from property they place in a trust. Since the law recognizes a trust as a separate legal arrangement, certain kinds of trusts can protect the assets they hold from the creditors of the person who created the trust (the settlor or trustor). With APTs, the focus is on preserving wealth placed in the trust.

Does Arizona Allow Asset Protection Trusts?

Arizona allows asset protection trusts when a settlor creates an irrevocable trust. State law allows a trust to protect its assets from the settlor’s creditors because the settlor cannot amend or revoke an irrevocable trust. Placing assets in an irrevocable trust means the settlor gives up ownership and any ability to own or control the assets.

However, Arizona currently does not permit a domestic asset protection trust (DAPT), or self-settled trust, which would allow the creator of the trust to be a discretionary beneficiary and receive protection from creditors. A hybrid DAPT is permissible, which can potentially protect assets from creditors but excludes the trust-maker from being a beneficiary.

In either case, asset protection trusts are distinct from estate planning trusts — sometimes referred to as asset preservation trusts — which focus on facilitating the distribution of inheritances to beneficiaries, planning for Medicaid eligibility, and reducing the risk of asset depletion over time.

How Do Asset Protection Trusts Work and Get Established?

You can use an asset protection trust to protect various kinds of assets, such as:

• Cash
• Investments
• Vehicles
• Real estate
• Artwork and collectibles

To establish an APT, you must execute a trust document that appoints a trustee and outlines the terms by which the trustee manages the trust. Then you must transfer assets to the trust, including retitling property like real estate, vehicles, or financial accounts.

Creating asset protection trusts can involve various startup expenses, including legal fees to draft the trust document and the paperwork necessary to transfer assets to the trust. Appointing a professional trustee to manage the trust can also lead to ongoing administrative expenses.

What Are the Benefits of Asset Protection Trusts?

Asset protection trusts can benefit settlors by allowing them to shield their wealth from creditors, judgments, or other significant expenses, such as long-term care. These trusts allow individuals to preserve their assets and pass them on to loved ones or other beneficiaries.

What Are the Cons of Asset Protection Trusts?

Using an APT can have some challenges or drawbacks. For example, you must create an asset protection trust before any creditor claims, lawsuits, or financial liabilities arise. If you set up the trust after knowing about a liability, an Arizona court may deem the trust a type of fraudulent transfer and allow a creditor to reach the assets in the trust.

A properly established asset protection trust also stipulates that you permanently relinquish ownership and control of an asset. Before deciding on an APT, discuss your options with an Arizona trust lawyer.

Shield Your Assets with Help from an Arizona Trusts Attorney

After you’ve spent your career growing your wealth, an Arizona trust can help you and your family reap the benefits of your hard work. Contact Pennington Law, PLLC today for a free consultation with an experienced Arizona attorney to learn more about how to set up a trust in Arizona.

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What Is a Living Trust?

A living trust is a legal document that you create during your lifetime. In the document, you transfer your assets and property to a trustee. The trustee’s responsibility is to manage the assets while you are alive. You may choose to serve as your own trustee. A successor trustee will facilitate passing the assets to named beneficiaries after you die.

Most living trusts are revocable trusts, giving you the right to amend or revoke the trust at will. Irrevocable living trusts transfer all property to a trustee and cannot be changed.

Can a Living Trust Protect Your Assets from Lawsuits?

A revocable living trust offers minimal protection of assets from creditors or lawsuits. Under Arizona law, assets in a revocable trust remain subject to claims from the creator’s creditors. Furthermore, assets in a revocable living trust remain subject to creditor claims unless otherwise exempted by state or federal law. If someone secures a verdict against you, they could go after your assets.

Alternative Strategies for Asset Protection in Arizona

Individuals and families prioritizing asset protection have other options for preserving their wealth against creditors or legal claims. Alternative asset protection strategies Arizona residents may pursue instead of using a living trust include:

• Irrevocable trusts – You can create an irrevocable living trust for assets you wish to protect from creditors or judgments. However, you cannot amend or revoke an irrevocable trust.
• Spendthrift trusts – A spendthrift trust includes provisions that expressly prevent the trust from lawsuits, bankruptcy, and creditor claims.
• Liability insurance – Individuals and families can purchase various liability insurance policies, including auto liability insurance, homeowners insurance, professional malpractice/errors and omissions insurance, and umbrella insurance.
• Limited liability companies – People who own businesses or income-generating assets (like real estate) may choose to protect those assets by establishing LLCs to house them.

Contact Our Arizona Estate Planning Attorneys Today

When you want to protect your assets through careful legal planning, an estate planning attorney from Pennington Law, PLLC can discuss the best way to shield your assets from lawsuits and creditors. Contact our firm today for an initial consultation with an experienced trust lawyer.

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At Pennington Law, we specialize in advanced estate and tax planning strategies, and we are proud to have been recognized as the Best Deferred Sales Trust Law Firm of 2025 by Best of the Best.

Let’s break down how a DST works and how pairing it with a market-driven annuity featuring a 22% bonus and enhanced death benefits can supercharge your financial future.

What Is a Deferred Sales Trust (DST)?

A Deferred Sales Trust is a legal tax-deferral strategy that allows investors to sell highly appreciated assets without immediately triggering capital gains taxes. Instead of selling your assets outright and paying taxes on the gains, you transfer them into a trust. The trust then sells the asset and structures payments to you over time, allowing for tax deferral and reinvestment into other opportunities.

How It Works for Market Investments

Many investors accumulate substantial wealth in the stock market over time. However, when it’s time to cash out, capital gains taxes can significantly erode profits. A Deferred Sales Trust can be an effective tool for mitigating this tax burden while keeping your funds working for you.

Step-by-Step Process

1.Sell the Asset to the Trust

Instead of selling your stock, business, or investment directly to a buyer, you sell it to a trust in exchange for a structured installment note (a promissory note).

2. The Trust Sells the Asset

Since the trust is a tax-neutral entity, it can sell the investment without immediate capital gains tax consequences.

3. Proceeds Are Reinvested—Maximizing Wealth with an Annuity

One of the most powerful reinvestment options for DST proceeds is a fixed indexed annuity with market-driven returns, a 22% upfront bonus, and an enhanced death benefit.

4. Tax-Deferred Payments to You

You receive structured payments over time based on the terms you establish, allowing you to control your taxable income while benefiting from market-driven growth and financial security.

Why a Fixed Indexed Annuity Works Well with a DST

A Deferred Sales Trust allows for flexible reinvestment, and one of the most tax-efficient and protective vehicles is a fixed indexed annuity. Here’s why:

• 22% Upfront Bonus – When DST proceeds are placed into an eligible annuity, the account immediately benefits from an upfront bonus of up to 22%, increasing the total principal and compounding long-term growth.
• Market-Driven Growth Without Market Risk – This strategy allows you to capture upside market returns while protecting your wealth from stock market downturns.
• Tax Deferral on Growth – Since annuities grow tax-deferred, your money compounds without immediate tax liability—aligning perfectly with the DST’s tax-deferral advantages.
• Enhanced Death Benefit Nearly Double the Investment – Many annuities offer enhanced death benefits, ensuring that your heirs receive nearly double your original investment, providing a built-in estate planning advantage.
• Steady, Predictable Income – The annuity allows you to create guaranteed lifetime income, supplementing the installment payments from your DST while ensuring you never outlive your wealth.

How This Strategy Protects Your Legacy

By integrating a Deferred Sales Trust with a high-value annuity, you achieve:

• Significant capital gains tax deferral – Keeping more of your money invested and working for you.
• Upfront wealth enhancement – The 22% bonus instantly increases your investable assets.
• Secure, market-driven returns – Earning growth without downside market risk.
• A powerful estate planning tool – Leaving your family with a guaranteed enhanced death benefit nearly double your original investment.

Why Choose Pennington Law for Your DST Strategy?

At Pennington Law, we specialize in advanced wealth protection and tax strategies, including Deferred Sales Trusts and tax-advantaged investment solutions. Our firm was recognized as the Best Deferred Sales Trust Law Firm of 2025 by Best of the Best, reflecting our expertise and commitment to helping high-net-worth clients safeguard their wealth.

If you’re considering a sale of highly appreciated investments and want to protect your profits while minimizing taxes, our team can help you explore whether a Deferred Sales Trust with an annuity is the right strategy for you.

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Annuities convert a lump sum of money or a series of payments into a guaranteed stream of income, essentially creating your own personal pension. Types of annuities include:

1. Fixed annuities

A fixed annuity offers the most predictable and stable income stream of all annuity types. When you purchase this type of annuity, the insurance company guarantees both your principal and a minimum interest rate. This means you’ll receive the same payment amount each period, making it easier to budget for retirement expenses. Fixed annuities are particularly appealing to conservative investors who prioritize safety and predictability over growth potential.

2. Variable annuities

Variable annuities provide an opportunity for higher returns by letting you invest in a variety of sub-accounts, similar to mutual funds. Your eventual payout will fluctuate based on the performance of these investments, which means you could potentially earn more than with a fixed annuity. However, this also means taking on more risk, as poor investment performance could lead to lower payments. Many variable annuities offer optional riders that can provide a guaranteed minimum income benefit, regardless of market performance, though these features typically come with additional fees.

3. Indexed annuities

Indexed annuities represent a middle ground between fixed and variable annuities, offering some growth potential while providing downside protection. These annuities link their returns to a market index, such as the S&P 500, but typically cap the maximum return you can earn in exchange for protecting against market losses. While you won’t capture all of the market’s upside, you also won’t suffer losses when the market declines. This compromise makes indexed annuities attractive to those seeking a balance between growth opportunity and security.

Each type has distinct features that might suit different retirement goals and risk tolerances. Given the complexity of annuity contracts and their long-term implications, it’s important to seek skilled legal and financial guidance when evaluating which option best fits your retirement strategy.

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Understanding the Tax Implications of a Crypto Exit

Cryptocurrency is classified as property by the IRS, which means every sale or trade is considered a taxable event. Depending on how long you’ve held the assets, your gains could be subject to:

• Short-Term Capital Gains Taxes: Taxed as ordinary income, with rates as high as 37%.
• Long-Term Capital Gains Taxes: Taxed at 0%, 15%, or 20%, based on income thresholds.

Investors with significant crypto holdings, particularly those who acquired their assets at a low cost basis, often face six- or seven-figure tax liabilities. Selling during a bull run can also push investors into higher tax brackets, increasing the overall burden.

Additionally, many investors are unaware of how tax law provisions like the DST can help mitigate these costs. With proper planning, a DST can allow you to lock in gains without immediately losing a significant portion of your wealth to taxes.

What Is a Section 453 Deferred Sales Trust?

The Section 453 DST allows investors to defer capital gains taxes by utilizing the installment sale method under the U.S. tax code. By selling crypto assets to a trust rather than directly to the market, investors can defer taxes until they receive distributions from the trust.

This strategy is especially beneficial for high-value transactions, offering flexibility in how and when tax obligations are met. Instead of paying the entire tax bill upfront, investors can use the deferred proceeds to grow their wealth.

How It Works

1. Transfer Ownership to the Trust: The investor sells their cryptocurrency to the DST in exchange for a promissory note, which outlines the payment terms.
2. Trust Liquidates the Assets: The trust sells the crypto on the open market and reinvests the proceeds into income-generating investments.
3. Deferred Payouts to the Investor: Payments are made over time, allowing the investor to spread the tax liability over several years.

The trust acts as an intermediary, enabling you to reinvest your proceeds without triggering an immediate tax event.

Benefits of Using a Deferred Sales Trust for Crypto

1. Tax Deferral: Postpone paying capital gains taxes, allowing the untaxed proceeds to grow within the trust.
2. Portfolio Diversification: Reinvest proceeds in a mix of assets, including stocks, bonds, real estate, and alternative investments, to reduce market exposure and volatility.
3. Wealth Preservation: By spreading payouts over time, you can reduce your tax bracket and retain more of your wealth.
4. Estate Planning Flexibility: A DST can be used to transfer wealth to heirs while minimizing estate and inheritance taxes.
5. Income Smoothing: For large crypto positions, a DST prevents sudden spikes in income, which can lead to unnecessary tax burdens.
6. Reduced Market Risk: Transitioning from highly volatile crypto assets into more stable investments helps secure gains and provides a steady financial foundation.

Key Considerations for Crypto Investors

1. Transaction Value: The DST is most effective for transactions exceeding $1 million, where tax savings justify the setup and maintenance costs.
2. IRS Compliance: Properly documenting the sale and transfer of cryptocurrency to the trust is critical, as the IRS closely monitors crypto transactions.
3. Professional Expertise: Implementing a DST requires collaboration with legal, tax, and financial experts who understand cryptocurrency and installment sales.
4. Market Timing: Crypto’s volatility makes timing crucial. A DST provides flexibility, enabling you to exit at a high point without triggering immediate taxes.

Case Study: Exiting the Crypto Market with a DST

Scenario: A long-term Bitcoin investor purchased 200 BTC at $300 each. With Bitcoin trading at $60,000, their holdings are worth $12 million, with a capital gain of $11.94 million. Selling directly would result in a federal tax bill of over $2.38 million at the 20% long-term capital gains rate.

Solution:The investor establishes a Deferred Sales Trust and sells their Bitcoin to the trust. The trust liquidates the Bitcoin and reinvests the proceeds into a mix of real estate and dividend-paying stocks. The investor receives structured payments over 20 years, significantly reducing the immediate tax burden and allowing the wealth to grow tax-deferred.

This strategy not only protects the investor from a sudden tax bill but also provides a reliable income stream and diversified portfolio for long-term financial stability.

Steps to Set Up a Deferred Sales Trust for Crypto

1. Engage Professionals: Consult with a wealth attorney and tax advisor experienced in cryptocurrency and DSTs.
2. Establish the Trust: Create the legal framework tailored to your financial needs and objectives.
3. Sell Crypto to the Trust: Transfer your holdings to the trust in exchange for a promissory note.
4. Trust Liquidates and Reinvests: The trust sells the cryptocurrency and reinvests proceeds in diversified assets.
5. Receive Payments: Structured payments allow you to control the timing and amount of taxable income.

Conclusion

The 453 Deferred Sales Trust is a game-changing tool for cryptocurrency investors looking to exit the market without sacrificing a large portion of their gains to taxes. By deferring taxes, diversifying investments, and smoothing income, a DST offers unparalleled flexibility and security.

This strategy is especially valuable during a bull run, allowing you to capitalize on favorable market conditions while securing your financial future. Whether your goal is to reinvest in new opportunities, create a steady income stream, or establish a legacy for your family, the DST provides a tailored solution to achieve your objectives.

If you’re considering a significant crypto exit, consult with a wealth attorney to determine how a DST can fit into your financial strategy. With proper planning and expert guidance, you can maximize your gains, protect your wealth, and set the foundation for long-term success.

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$84 trillion is a staggering amount of money, and it shows that this financial process is going to be complicated. There are many different things to consider at this time.

Do you want to give gifts in advance?

One way to prepare is by reducing the value of your estate now. This can sometimes have benefits from a tax perspective, depending on the value of your estate. It can also streamline the process because you can talk with beneficiaries about how you want to transfer your assets while you’re still alive.

Putting assets in a will

Similarly, it helps to draft an estate plan so that you can use a will to split up the remaining assets between beneficiaries when you pass away. Estate disputes are common for those who die intestate—without a will—so it’s beneficial to your family if you have this plan in place in advance.

Utilizing trusts and other accounts

Finally, you may want to think about putting some of your assets into trusts. Trusts can hold assets for a minor who may not be old enough to inherit directly. A trust can also be used to specify how those funds should be used, such as setting up a trust to pay for a beneficiary’s college education.

These are just a few things to consider as you work on creating your estate plan and considering your role in the great wealth transfer. Be sure you know what legal options you have. Contact us online or call today for a free consultation with Pennington Law, PLLC.

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A fixed indexed annuity (FIA) is an insurance product that financial planners sometimes overlook as a strategy for retirement savings, Pennington writes. Investing in the stock market can feel risky for retirees, who worry about outliving their financial resources. Fixed indexed annuities allow people to participate in stock market gains without worrying about taking a hit in a downturn. That’s because you never put your principal in danger. With an FIA, your original investment remains safe regardless of market behavior. At the same time, you can potentially grow your savings and improve your financial security.  

Some fixed indexed annuities also allow lifetime income options, enabling people to draw a steady stream of income during retirement and defer taxes until withdrawals begin.

Pennington also offers some cautionary advice: Fixed indexed annuities are complex products, so finding someone well-versed in retirement planning is essential to ensure it’s a tool that best suits their objectives. 

To learn more about how fixed indexed annuities might fit into your retirement protection strategy, schedule a free consultation with Pennington Law, PLLC today.

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On the flip side, many benefits come with this type of trust. According to WealthCounsel, LLC, 63% of estate planning attorneys reported an increase in the use of irrevocable trusts in 2020 compared to 2019. Tax benefits are one of the biggest draws to this type of trust. The trust retains control of the assets through multiple generations, which means they aren’t taxed as they move down the generational line.

What are the other benefits of a dynasty trust?

Dynasty trusts established in Arizona can last many generations. This enables the family’s wealth to remain within the family for the long haul.

This type of trust offers protection for the assets. It offers protection against creditors and divorce settlements. It can even prevent irresponsible spending by beneficiaries since the trust can outline specific requirements for how and when the assets are distributed. These may include requirements like obtaining a degree or being a certain age before they’re able to reap the benefits of the trust’s assets.

Setting up a dynasty requires specific steps, so it’s best to work with someone familiar with these. This is only one component of a comprehensive estate plan. Individuals who are handling their estate plan should also have a will set. Powers of attorney designations and possibly other trusts are also necessary. Contact us online or call today for a free consultation with Pennington Law, PLLC.

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People need to strategize in order to maximize their holdings and protect them against a variety of different risks. What are some of the most common and successful wealth preservation strategies utilized in Arizona?

Investment diversification

One of the biggest mistakes people with significant resources make is to hold their assets primarily in one type of investment. Whether they start a small business or purchase residential real estate, they need to be aware that all markets fluctuate. Investing in a variety of different types of assets can protect against the loss of wealth when there is an adjustment to any one market. People often need the help of a financial advisor to make the right investment choices.

Asset protection planning

Resources can be vulnerable not just because of the market but because of personal circumstances. Divorce or lawsuits can endanger someone’s valuable personal holdings. Asset protection planning often involves transferring the ownership of certain assets to a trust as a way of separating an individual from their most valuable resources. That way, their assets aren’t vulnerable during litigation or debt collection efforts. Asset protection planning often goes hand-in-hand with estate planning, which can help preserve resources for the next generation.

Proper insurance

There are many kinds of insurance that can protect those with sizable assets and substantial income. Life insurance, long-term disability coverage and even property insurance can all be important to protect someone’s finances and limit their liability.

Creating a customized wealth preservation plan is often the best option for those who want to preserve what they have acquired for their comfort and the well-being of their loved ones. Wealth preservation can involve a variety of different actions depending on the assets someone holds, their family circumstances and their financial goals. Contact us online or call today for a free consultation with Pennington Law, PLLC.

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The Arizona Long-Term Care System (ALTCS) is the arm of the Arizona Medicaid program that provides long-term care coverage for qualifying individuals. Your eligibility is based on meeting specific income and asset requirements. Estate planning can help your application fall within Medicaid limits when the time comes, especially if you start the process early.

What is ALTCS?

Arizona’s State Medicaid Program (AHCCCS) provides general medical coverage for low-income individuals. ALTCS focuses specifically on individuals who are 65 or older or have a qualifying disability and need long-term care.

To qualify for benefits, an individual must be a U.S. citizen or qualifying immigrant residing in Arizona with a valid Social Security Number. Applicants must also meet financial and medical criteria.

Financial Eligibility

The financial requirements for ALTCS are complex. To qualify, an individual’s gross monthly income cannot exceed specific amounts, which are adjusted annually for inflation. Assets are also limited and separated into countable and uncountable resources. The state analyzes these resources to determine Medicaid eligibility.

Countable resources include:

• Checking and savings accounts
• Real property (other than your primary residence)
• Additional vehicles
• Stocks, bonds, and certificates of deposit

The following are uncountable assets:

• Primary place of residence in Arizona
• One vehicle used for transportation
• Burial plots
• Personal belongings

Note: Different rules apply to married couples, so talking to an estate planning attorney can help ensure you comply with Medicaid requirements.

Medical Eligibility

Applicants undergo a Pre-Admission Screen (PAS) for a functional and medical assessment. An assessor primarily looks at the applicant’s ability to perform activities of daily living (ADLs). These include activities like dressing, bathing, cleaning, cooking, and toileting. Generally, applicants who need hands-on care to perform ADLs are eligible.

What Long-Term Care Services Does Medicaid Provide?

Medicaid can help cover a wide range of costs for older Arizonans, including:

• Costs for in-home care, assisted living, community-based services, and skilled nursing homes
• Medical expenses, mental health care, prescriptions, and hospice

How Estate Planning Attorneys Can Help

Many people need Medicaid to afford long-term care in Arizona but find themselves in a bind — too wealthy to qualify for assistance, but not wealthy enough to pay for services out of pocket. An estate planning lawyer can use effective legal tools like trusts, asset transfers, and spend-down strategies to meet the Medicaid income and resource tests.

It’s important to know the state employs a five-year lookback rule to evaluate Medicaid eligibility. Asset transfers made during that time could trigger a penalty that renders you ineligible for a certain period. A well-drafted estate plan can maintain your eligibility for Medicaid while preserving your assets for the future.

Contact an Arizona Estate Planning Lawyer Today

Questions about long-term care and estate planning in Arizona? Pennington Law, PLLC has the answers. Call or contact us today for a free consultation.

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