Asset Protection Trust

If you want to protect your assets from creditors, one of the most powerful ways to do so is through an Asset Protection Trust.

But did you know there are two different types of Asset Protection Trusts – each with their own rules and regulations? And when you choose one of those trusts, it’s only allowed in certain states.

Plus, Asset Protection Trusts don’t come for free!

Everyone’s financial situation is different, so in the article below we’re going to discuss the different types of Asset Protection Trusts, what they are and how they can help protect your wealth for you and your family.

What is an Asset Protection Trust?

The main purpose of an Asset Protection Trust (APT) is to protect your assets from creditors. This is the strongest legal document you can have to help prevent lawsuits, or any judgements against your estate, after you’ve passed.

How Asset Protection Trusts Work

Asset Protection Trusts should be irrevocable. This means that once created, it’s virtually impossible to alter or terminate them without the approval of the Trustee. You can have revocable Trusts, but that means the document can be changed at any time – and that does not truly provide effective asset protection.

There are two types of Trusts that protect your assets - domestic asset protection trusts and foreign asset protection trusts.

  • Domestic Asset Protection Trusts - These are asset protection trusts that are established in the U.S.

The Domestic Asset Protection Trust is currently only recognized in 17 states: Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming.

  • Foreign Asset Protection Trusts - These are trusts that are established in offshore jurisdictions such as the Cayman Islands.

Since everyone has a different personal and financial situation, there aren’t specific measures for when you should set up an APT. However, the general rule for setting a trust up is when you have at least $1 million in assets to protect.

In order for the APT to be beneficial, you must be able to fund it. You can do this in various ways:

  • Cash
  • LLCs
  • Real estate
  • Assets
  • Crypto
  • Intellectual property

What are the Benefits of Creating an Asset Protection Trust?

The main reason Asset Protection Trusts are created is to protect assets from lawsuits and creditors. However, there are several other advantages such as:

  • Safeguards assets for beneficiaries
  • Skips the stressful probate process
  • Lower taxes
  • Estate planning vehicle
  • Keeps the transfer of your financial matters private
  • Plans for incapacity

The main disadvantage concerning APT’s is that it’s irrevocable. This is both a blessing and curse because once you’ve made this document, you cannot change it.

Should You Start an Asset Protection Trust? Is it Right for You?

Asset Protection Trusts are not for everyone. Typically, business owners, doctors, real estate owners, executives, celebrities, and individuals who have accumulated a lot of wealth benefit most from APT’s.

Because of the solid protection an Asset Protection Trust can offer, it’s an estate planning strategy for any high-profile individual that wants to protect their assets from lawsuits and creditors. It’s critical that you know exactly what you’re signing up for and how to properly set an APT up.

You cannot wait until a lawsuit occurs to put your assets in a trust. An APT must be fully set up and funded prior to any claim or lawsuit for it to provide you proper legal protection. Most individuals will draft an APT as part of their estate planning.

Everybody has a different situation that is unique to them. There is no one size fits all for these types of decisions. To get the best advice it helps to consult a business attorney. A business attorney knows how these are created and who they are best for.

They can help you form an asset protection trust or find a better option to protect your assets if they aren’t right for you.

To get more information about asset protection trusts and if they are right for you, give us a call or contact us online. We offer free consultations and are more than happy to help!