Have you ever wondered how to protect your hard-earned assets from possible risks and liabilities?
Finance security is crucial for everyone, and an Asset Protection Trust is a powerful tool designed to protect your wealth from unexpected threats like legal cases or financial struggles.
If you want to protect your assets, you’ve come to the perfect place!
With my 25 years of experience as a financial coach and banking expert, I’ll show you the ultimate guide on asset protection trusts.
Below, you’ll learn everything you need to know about Asset Protection Trust and how it can help guard your investments.
APTs have become an essential aspect of estate planning.
But nowadays, Trusts, such as Asset Protection Trusts, offer various benefits to different people.
APTs can help protect your wealth from creditors, lawsuits, and financial difficulties.
Though there are many other types of trust, we’ll focus on asset protection trust.
You’ll learn how APTs work, their different types, advantages, and more.
Scroll down and let’s start!
What is an Asset Protection Trust (APT)?
Are you looking for a way to ensure your asset’s safety?
Asset Protection Trust (APT) is a kind of trust that holds a person’s assets with the main purpose of protecting them from creditors.
APTs offer the strongest and most reliable protection from creditors, lawsuits, or any liabilities against your estate.
An APT can even prevent pricey litigation or favorably affect the outcomes of settlement negotiations.
How Does an Asset Protection Trust Work?
Asset Protection Trusts are funded with assets. What kind of assets, you asked?
Your assets can include cash, stocks, business assets, real estate, LLCs, and luxury properties.
However, putting assets in an APT will be a long process filled with regulatory speedbumps.
For instance, every asset needs to be evaluated from various viewpoints:
- How much of the total assets will the APT protect from litigation or taxation?
- If you put your stocks and other assets into an APT, how will it affect your company’s management and growth?
- Will the family members have access to the assets if something happens to the trust creator?
If you plan to establish an Asset Protection Trust, it’s best advised to consult with your most trusted lawyers or financial coaches.
Once you’ve created the APT, the beneficiary will not have access to your trust funds, nor will creditors.
Trust is a great way of ensuring the safety of your legacy and protecting your family.
Types of Asset Protection Trust
Having a trust is a way to cement and safeguard your legacy. However, the type of trust will affect the protection you provide.
Generally, there are three basic types of APTS: Domestic Asset Protection Trust, Foreign Asset Protection Trust (also known as Offshore Trust), and Medicaid Asset Protection Trust.
Domestic Asset Protection Trust
This kind of trust offers the most flexibility in asset protection trust laws in the U.S. It is also one of the easier types to establish.
However, Domestic APTs are created and hold assets in the U.S. legal system, which puts your assets at risk from court orders.
Domestic APTs are also not available in every state. Here are the 17 states that permit it:
- Alaska
- Delaware
- Hawaii
- Indiana
- Michigan
- Mississippi
- Missouri
- Nevada
- New Hampshire
- Ohio
- Oklahoma
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Utah
- Virginia
- West Virginia
- Wyoming
Foreign Asset Protection Trust
Next, we have the Foreign Asset Protection Trust. Foreign APTs are trusts that are set up outside of the U.S.
Also called offshore trusts, these trusts are governed by the laws of the country where the trusts were established.
A few common countries for offshore trusts are:
- Cayman Islands
- Cook Island
- Nevis
- Belize
- Isle of Man
Foreign APTs are usually pricier and harder to establish than domestic APTs, but they offer more privacy than other alternatives.
Foreign APTs are also usually more effective in protecting assets.
Medicaid Asset Protection Trust
Medicaid Asset Protection Trust (MAPT) is a Trust used to lessen or eliminate the inclusion of assets in your total estate value.
A large estate can have a huge impact on your Medicaid eligibility.
MAPTs allow individuals to qualify for Medicaid benefits while protecting assets from depletion if prolonged care is needed.
Benefits of Setting up an Asset Protection Trust
Asset Protection Trusts offer many advantages for business owners since they’re specifically used to protect assets from creditors, lawsuits, or financial problems.
Here are the best benefits of establishing an Asset Protection Trust:
Asset Protection Against Creditors and Lawsuits
Again, one of the main advantages of APTs is safeguarding assets from creditors, lawsuits, and other liabilities.
If you lose a court case filed by a creditor, you could lose property like your house or car or drain all your cash in your bank or savings accounts.
One of the prime advantages of asset protection trusts is that they can protect assets from creditors and lawsuits.
Establishing an APT is a great strategy to protect your assets effectively.
Skip the Probate Process
If something happens to the grantor, rest assured that APTs will protect all your assets for your family by bypassing the probate process.
Probate is a legal procedure where an executor collects your assets, pays off any remaining debts, and then allocates the remaining assets to your heirs or family members, depending on the terms of your will.
It’s possible to save large amounts of cash in legal fees and avoid the usual slow probate process.
Shielding the Beneficiaries
Rest assured that assets in the APTs are not included in your beneficiaries’ taxable estate.
In an untimely death, assets inherited by your children will not be taxed, which helps your grandchildren thousands of dollars in inheritance tax.
Reducing Tax
APTs, specifically Foreign APTs, can help you lessen the tax you pay.
If you opt for a Foreign APT in a country with lower tax rates, you’ll most likely pay less tax on your assets and less domestic tax.
How to Establish an Asset Protection Trust
Setting up an Asset Protection Trust is more complex than you think.
That’s why it’s recommended to work closely with an attorney.
Usually, two basic steps in establishing an APT are making the trust agreement and funding the trust.
If you’re considering creating an APT, here is a quick step-by-step guide on how to:
- Picking the right jurisdiction – By now, you should be working side-by-side with your attorney. Your attorney will help you choose the best state or country to create the trust.
- Drafting the trust document – A trust agreement should have outlined the trust’s terms, conditions, trustee, and other crucial information.
- Choose a Trustee – Select an individual you trust to manage the APT. Their job is to manage the assets and ensure they are properly distributed according to the terms.
- Fund the trust – Funds can be in a way of cash, asset, security, real estate, and even intellectual property.
How Much Does an Asset Protection Trust Cost?
Asset Protection Trusts are costly.
For instance, a simple Domestic APT can cost around $2000 to $4000, and that’s just in legal fees! More complicated trusts can range to over $5000.
And as we’ve tackled earlier, Foreign APTs are usually more expensive.
This kind of trust typically costs about $20,000 – $50,000 to establish.
Keep in mind that there are still other fees to take care of, such as asset management fees, which typically cost around $2000 – $5000 per year.
Frequently Asked Questions
Why do you need asset protection?
Business owners or other individuals use asset protection to eliminate creditors’ legal access to their properties.
What are the possible disadvantages of asset protection trust?
A few possible downsides of using an APT are that it can be expensive, especially foreign APTs.
On the other hand, some APTs are not accessible to everyone since Domestic APTs are only available in some states.
Can a trustee be a beneficiary?
It’s not unusual for the grantor’s trustee to also be a beneficiary since they usually appoint family members or friends to manage and inherit from their trust.
Asset Protection Trust: Final Thoughts
An Asset Protection Trust is a great trust vehicle for wealth protection. Assets held in this trust are guarded from lawsuits, creditors, and financial issues.
However, APTs are irrevocable trusts; Owners have control over how their assets will be used, and only the assigned beneficiaries will have access to them.
Yet APTs offer various benefits other than asset protection. APTs can help skip probate, shield the beneficiaries, and reduce taxes.
Asset Protection Trusts take work to set up. It won’t be cheap, and it is time-consuming.
If you’ve decided that APTs is the right trust for you, now it’s time to contact your attorney and draft trust documents.
Asset Protection Trusts require professional assistance to ensure the quality and safety of the trust.
RELATED: BUSINESS TRUST 101: HOW DOES A TRUST PROTECT MY ASSETS?