26. What are the main risks? What could go wrong?
Risks of any APT, ranked biggest first:
- Your own future creditors. The protection is strongest against claims that arise after funding and after legal "seasoning" periods pass. If you fund the trust while a claim already exists, or file bankruptcy within 10 years of funding, courts can potentially reach the assets. Also, if you live in a state hostile to these trusts (such as Washington), a determined creditor may argue your home state's law should apply. Funding early — while financially healthy and claim-free — matters more than anything else.
- Divorce. Contributing marital/community property without your spouse's written consent can let a divorce court unwind the transfer. Proper spousal consent at funding prevents this.
- Loss of demand rights. You cannot compel money back out. If you may need the assets personally, contribute less.
- Overuse undermines protection. Treating the trust like a checking account — frequent withdrawals rubber-stamped by the trustee — gives a future creditor ammunition to argue the trust is a sham. Discipline preserves the shield.
Upstream Trust-specific risks:
- Parent's estate has unexpected debts. The slice of trust assets under a parent's tax power can be reached by that parent's estate's creditors if their estate can't pay its own debts at death. This is managed by sizing the power carefully, drafting it narrowly, and revoking it if a parent's finances deteriorate.
- The step-up doesn't materialize. If a parent dies within about a year of the power being granted, if their own estate grows past their exemption, or if they move to a state with an estate tax, the step-up can shrink or fail. The trust still works as an APT — you just don't get this particular benefit (and a backup step-up still occurs at your own death).
27. How long does the protection take to become effective?
Creditor protection laws include waiting ("seasoning") periods. In New Hampshire, existing creditors generally have a limited window to challenge a transfer, and future creditors are barred after the statutory period passes. Separately, federal bankruptcy law has a 10-year reach-back for transfers made to defeat creditors. Practical rule: the protection is weakest on day one and strengthens every year — which is why the best time to fund is when you're financially healthy and no claims are on the horizon. The basis step-up feature has its own clock: the parent must generally survive at least 12 months after the power is granted.