Can You Create an Asset Protection Trust in Maryland?
Short answer: not in the way the phrase usually means. A domestic asset protection trust is a trust you fund yourself, in which you remain a possible beneficiary, designed to keep creditors out of reach. Maryland's Trust Act does not support that design. If you are searching from Baltimore, Glen Burnie or anywhere else in Maryland for an asset protection trust lawyer, that is the rule you start from. The tools that do work are narrower, and they must be in place before a claim exists.
What the Maryland Trust Act says
Section 14.5-508 of the Estates and Trusts Article applies whether or not a trust has a spendthrift provision, a clause that restrains a beneficiary from transferring an interest and creditors from reaching it. During the settlor's lifetime, the property of a revocable trust is subject to the claims of the settlor's creditors. The settlor is the person who creates and funds the trust. For an irrevocable trust, a creditor of the settlor may reach the lesser of the creditor's claim and the maximum amount that can be distributed to or for the benefit of the settlor.
The one carve-out in that section concerns certain disability trusts described in federal Medicaid law, where a court may limit a creditor's award in light of the beneficiary's supplemental needs. The section has no carve-out for a trust set up to shield the settlor's own wealth. That is why the structure usually sold as a domestic asset protection trust does not work as a creditor shield here. The protection comes from giving up the benefit, not from the label on the document.
Trusts where the benefit really moves
A trust you create for someone else is a different case. Under § 14.5-502, a creditor of a beneficiary has no enforceable right to trust income or principal that may be distributed only in the trustee's discretion, when someone other than the beneficiary created the discretionary provision, and the trust property is not subject to enforcement of a judgment until it is distributed to the beneficiary. A trust for your children or your spouse can therefore protect what it holds from that beneficiary's creditors. What it cannot do is protect you, because you have given up the right to use the property.
Tenancy by the entirety, and the trust version
For married couples, Maryland has an older and sturdier tool. A tenancy by the entirety is a way for spouses to hold title together in which neither can sell or encumber the property alone. Maryland's highest court, then called the Court of Appeals, has said that it is well settled that property held in a tenancy by the entireties cannot be taken to satisfy the individual debts of a husband and wife (Diamond v. Diamond, 298 Md. 24, 29 (1983)). The rule speaks to individual debts. It addresses a creditor of one spouse, not a debt both spouses owe.
For property conveyed to a trustee on or after October 1, 2010, spouses can carry that immunity into a trust. Under § 14.5-511, entireties property later conveyed to a trustee keeps the same immunity from the claims of the spouses' separate creditors as long as four conditions hold: the spouses remain married, the property stays in trust, both spouses are beneficiaries, and the trust instrument, deed or other conveyance states that the section applies. Miss the last one and you have not used the statute.
Two more rules matter. The immunity is waived if a trustee delivers a financial statement for the trust that fails to disclose the requested identity of the immune property, unless the property is otherwise reasonably disclosed, for example in a recorded deed. And in a dispute, the trustee has the burden of proving that the property is immune.
LLCs and charging orders
For rental property and operating businesses, Maryland's limited liability company act makes a charging order the exclusive remedy of a member's creditor against the member's interest (Corporations and Associations Article § 4A-607). A charging order is a lien that requires the company to pay the creditor only the distributions otherwise payable to the member, and the member keeps the noneconomic interest. Unless the parties have agreed otherwise, a court may order foreclosure of the economic interest if distributions will not pay the debt within a reasonable time, and the buyer is an assignee rather than a member. The operating agreement therefore matters, and a one-line template rarely addresses it.
Exemptions are modest
Maryland's statutory exemptions are small. Courts and Judicial Proceedings § 11-504 exempts $500 in a deposit account without election, $1,000 in household goods and $5,000 in tools of a trade. A debtor who elects within 30 days after an attachment or levy can exempt up to $6,000 in cash or property, a total that includes the $500 account exemption. Qualified retirement plans listed in that section are exempt without a dollar cap, other than claims by the Maryland Department of Health.
Timing and fraudulent conveyance
Every tool above is judged by timing. The Maryland Uniform Fraudulent Conveyance Act treats a conveyance made with actual intent to hinder, delay or defraud present or future creditors as fraudulent (Commercial Law § 15-207). It also reaches conveyances made without fair consideration by someone who is or will be rendered insolvent (§ 15-204), who is left with unreasonably small capital for a business (§ 15-205), or who intends or believes they will incur debts beyond their ability to pay as the debts mature (§ 15-206). A creditor whose claim has matured may have the conveyance set aside to the extent needed to satisfy the claim, and does not have to obtain a judgment first (§ 15-209). The time limit for bringing such a claim is a question we check for each situation.
Asset protection in Maryland is not a county or government program. The same statutes apply in Baltimore, Glen Burnie and across the state, and a plan is a set of documents chosen for your assets: entities, titling, a trust where it fits, and beneficiary designations.
Brandon Northington, a partner admitted in Maryland and the District of Columbia, advises Maryland clients on these structures, including clients in Baltimore and Glen Burnie. To see how the rules apply to your home, rental property or business, start with our Asset Protection practice. Planning has to precede any claim, and no plan can promise a result.