Why might someone choose to create a third-party self-settled trust?

Creating a third-party self-settled trust is often a strategic decision aimed at protecting assets from potential creditors and legal claims. This type of trust can provide a layer of security for individuals who may be concerned about future financial vulnerabilities. By placing assets into this trust, the individual typically relinquishes direct control, thereby making it more challenging for creditors to seize those assets in the event of a lawsuit or financial trouble.

Protection from creditors is an essential feature of such trusts, as it offers a level of insulation from personal liability. This means that if the individual faces bankruptcy or legal judgments, the assets held in the trust may not be subject to claims by creditors.

In contrast, retaining complete control of assets, eliminating tax obligations, and guaranteeing lifetime income are not objectives typically associated with third-party self-settled trusts. For instance, maintaining control over trust assets generally undermines the very protective purpose of setting up such a trust, as creditors can more easily access assets that the individual still controls. Similarly, while some trusts may have tax benefits, the creation of a third-party self-settled trust is not primarily intended for tax elimination, and guaranteed income is typically a characteristic of specific financial products rather than trusts.