While in a way this trust future-proofs your assets, there has to be strict guidelines on establishing your asset as viable for placing under a protection trust.
Once your assets are placed under a protection trust, you can be assured that your wealth and assets stay intact until the designated time and condition of their release. This type of wealth and estate planning isn’t just exclusive for retirees or people of advanced age. As early as your prime years, you can plan on placing some of your precious properties and assets in a protection trust. Thus, it is essential that you know the coverage of an asset protection trust before you proceed with getting one.
Types of Asset Protection Trusts
People from different stages in life have different priorities when it comes to how they want to manage their assets. There two types of asset protection trust that you can choose from: a revocable living trust and an irrevocable trust. Legal minds working for Rhodium Law suggest thoroughly looking over each option to understand the level of control and protection each trust type offers. They emphasize that a revocable living trust allows flexibility, while an irrevocable trust provides more robust protection from creditors.
Living Trust
This type of trust gives you the option of retaining control over your trust while you are still living. This works well if you are planning on how your estate will be managed after you pass on and make the estate distribution faster by avoiding probate. However, a living trust doesn’t give you strong protection against lawsuits from creditors. In the event where a creditor wins a lawsuit against the settlor (the person creating the trust), the court can order to have the settlor’s assets be used for settling the creditor’s claim.
Irrevocable Trust
This other type of asset protection trust (APT) gives you the protection you need in keeping your wealth and assets off-limits to creditors, lawsuits, and judgments. Since this is an irrevocable trust, you no longer have control over the trust’s assets or the terms of the trust. The control of the trust’s assets is turned over to the trustee (an individual designated to manage the trust). Thus, in the event of lawsuits, your wealth and assets will still be intact even if the creditor wins the lawsuit.
Those who are taking out a Deferred Sales Trust should carefully evaluate their financial goals and consult a qualified tax advisor to ensure compliance with regulations. Proper planning can help maximize the benefits of this trust while minimizing potential risks.
Irrevocable trusts also offer two types of protection vehicles: foreign or offshore APT and domestic APT.
Foreign APT
This trust protection vehicle is initiated in territories outside of the US. Thus, it can also be called an offshore asset protection trust because your assets are placed in an offshore account, which is outside of US jurisdiction. What this means for you as the settlor is that your asset is securely placed in an account of the reach of US court orders. Your trustee will not be compelled to local court orders as a result, making your trust strongly lawsuit- and judgment-proof.
Domestic APT
A foreign or offshore APT might be an effective yet costly option for protecting your assets. If you are looking for the next best option for asset protection and with a lower cost, a domestic APT can be your best bet. However, there are currently a limited number of states that permit asset protection trusts. Nevada is the first state that adopted the asset protection trust laws, followed by 16 other states: Delaware, Wyoming, Tennessee, Utah, South Dakota, Virginia, West Virginia, Ohio, Oklahoma, Michigan, Mississippi, Missouri, New Hampshire, Hawaii, Rhode Island, and Alaska. Asset protection trust laws are gradually being recognized by more states so if you plan to avail of a domestic APT, you’ll need to consult with an experienced and qualified estate planning adviser.
What Does Establishing an APT Cover?
The good thing about an asset protection trust is its flexibility. This type of trust is a distinct legal vehicle that can own a wide range of assets, including but not limited to properties and bank accounts. Thus, you can transfer to a trust your real estate, prized personal possessions, cash, stocks and bonds, personal collections and properties and even cars as assets. Basically, establishing APT works with you as the settlor, or the one opening the trust, funding the trust, while the beneficiaries eventually benefit from the assets in the trust.
Once you place your assets in a trust, you as the settlor are separated from the trust, and your assets will be managed under a trustee. The legal and financial benefit of this arrangement is that if the settlor is involved in a lawsuit, the trust assets cannot be pursued and only the settlor’s personal assets can be involved. Even trust assets that are being distributed to the beneficiaries still retain protection due to the provisions in the trust deed, making your assets effectively off-limits from creditors and ensuring that they are securely distributed to the beneficiaries.
When it comes to protecting your finances and assets for the next generation or simply putting your mind at ease, an asset protection trust can be a reliable option. Being able to keep your hard-earned money, properties, and other assets from threats of lawsuits, creditors, divorce and judgments can help get you back on track. As an estate planning vehicle, an asset protection trust also offers the same protection to give maximum benefit to your intended beneficiaries. Planning for the future and for uncertain times can best be done by keeping your assets safe. Thus, it could be high time to consider establishing an asset protection trust.
