Asset protection trusts shield your real and personal assets from possible seizure by creditors or from lawsuits against you or your business. Without an asset protection trust, you can have everything you worked for taken away in one judgment. For this reason, your business plan should always include a protection vehicle for such assets as banking accounts, cash, personal property and realty, including your home.
When not controlled by statute, an asset protection trust is known as a common law trust. Some trusts are set up under state law, particularly in Alaska, Delaware and Nevada; such a trust is referred to as a domestic asset protection trust. You can decide whether to set your asset trust fund with you as grantor, trustee or beneficiary, or a combination of all three. You can also designate your heirs as beneficiaries and be assured that their inheritance will not be subject to probate court or subject to federal estate taxes. Here are things to consider about asset protection trusts:
1. Consult an asset protection law firm for the best legal strategy to shield your assets.
2. Transfer assets to your heirs through living trust asset protection.
3. Set up an offshore asset protection trust.
Consult a lawyer about asset protection trustsWhen setting up an asset protection trust fund, consult a lawyer who can tell you just how much protection a trust fund can afford you as well as discuss the legal underpinnings and ramifications. You can then determine which legal structure is best to protect your assets.
Transfer assets to your heirs through an asset trust fundA living trust basically acts like a will, passing on your property to your designated heirs. But unlike a will, your heirs (beneficiaries) can avoid a lengthy probate and fees with a living trust asset protection. Upon the death of the grantor, the trust becomes irrevocable, and the assets are under the trustee's discretionary control, remaining outside the reach of creditors.
Consider an offshore asset protection trustOffshore asset protection trusts have their pros and cons, but they are considered good protection against creditors and frivolous lawsuits. These trusts are usually set up in countries with flexible trust laws that also offer investment diversification.
- Even though most asset protection trusts are common law trusts, a few states--Alaska, Delaware and Nevada--have passed anti-creditor statutes that allow domestic asset protection trusts to be created under law. However, the 2005 changes in the federal Bankruptcy Code include a 10-year limitation clause that makes transfers to domestic asset protection trusts 10 years before bankruptcy automatically suspect. Therefore, you should be wary of using one of these statutory trusts for asset protection.