An asset protection trust (APT) can describe any of a number of different vehicles that can shield your assets from lawsuits or other creditors. This is a trust that fully transfers control of your assets to a trustee while you remain the beneficiary. The main two types of asset protection trusts are domestic and foreign/offshore asset protection trusts.
Irrevocable Trusts are similar to corporations and LLCs in that they are considered separate legal entities. The trust must be irrevocable in order to be a separate legal entity. An irrevocable trust is a type of trust in which terms typically cannot be modified, amended, or terminated without the approval of the named beneficiary or beneficiaries. Once the grantor transfers ownership of assets into the trust, he or she is no longer considered the legal owner of the assets inside the trust. As with an LLC or FLP, creditors can still attempt to get access to income from the trust, including most distributions.
In an asset protection trust, typically, you become the beneficiary of the trust while someone else serves as the trustee. The trustee will hold the legal title, but you, as the beneficiary, will hold an equitable interest. This means that while the property held in trust is technically yours, you can’t lose your assets due to a lawsuit. Usually what makes an asset protection trust different from another kind of trust is that it is a self-settled spendthrift trust. This means that you are both the settlor (the person who creates the trust) and the beneficiary (the person who gets to benefit from the trust), but you may or may not be the trustee (the person who controls the trust) though you do maintain a certain amount of control over how the trust assets are used.
The spendthrift clause is a key provision of asset protection trusts, crafted to protect someone at risk of losing their assets to a judgment creditor or in a bankruptcy proceeding. By using the same language that was originally drafted to protect these so-called spendthrift beneficiaries with an asset protection trust, we’re able to protect assets from lawsuits. This is because the assets are under the control of the trustee rather than the settlor of the trust personally. This works because the trustee, rather than the settlor, is in charge. If a judge orders the settlor of the trust to turn over his assets to satisfy a judgment, the settlor can honestly state that it is the trustee, not himself, who has the authority to do so. Likewise, the trustee can state that he is legally obligated to follow the terms of the trust and maintain the assets until the lawsuit is resolved.
There are foreign asset protection trusts that are legal and effective. You would simply move the assets to a trust that is domiciled offshore. There are numerous foreign jurisdictions that have laws that are conducive to asset protection trusts and are very aggressive in protecting your assets.
A Domestic Asset Protection Trust (DAPT) is an irrevocable trust in which the beneficiary can be the same person that created the trust, and the trust’s assets are shielded from that individual’s creditors.
An Offshore Asset Protection Trust is a trust that is formed under the laws of a foreign, offshore jurisdiction, generally, the management of the trust is carried out overseas and the trust assets are also deposited in an offshore jurisdiction.
The Cook Islands is one of the leading jurisdictions for overseas trusts. The islands have laws that are protective of foreign assets that are domiciled in the Cook Islands. With a Cook Islands Trust, if you lose a case and were ordered by the court to instruct the trustee to send the assets back to the U.S., the trustee is forbidden by the laws of the Cook Islands.
A Nevis trust can hold offshore bank accounts, stock market investments, real estate, and other assets. While bank accounts can be opened with local banks in Nevis, a Nevis trust can just as easily hold accounts from other offshore banking centers such as the British Cayman Islands, Luxembourg, or Switzerland.
The Titanium Trust® combines the security of foreign asset protection with the simplicity of domestic asset protection. The Titanium Trust® starts as a Domestic Asset Protection Trust. You are the trustee and you can determine when distributions are made. Then, if the trust ever comes under attack, control of your Trust is handed off to your Cook Islands Trustee and you receive the protection of a Cook Islands Foreign Asset Protection Trust. The Titanium Trust® protects your assets in the U.S. with the advantage of agility to move your assets through a network of International Trust Companies, Protectors, and Bankers who work together to safeguard your assets.
There are multiple pros and cons to asset protection trusts. These pros and cons can vary by the type of APT you get.
A domestic asset protection trust (DAPT) is a legal structure that allows you to protect your assets from legal threats. In essence, a DAPT is an irrevocable trust in which the beneficiary can be the same person who created the trust, and the trust’s assets are shielded from that individual’s creditors.
Due to the simplicity and flexibility of a DAPT, it has become an increasingly popular option for asset protection. While business owners have traditionally been able to protect themselves by using limited liability companies or corporate entities, a DAPT allows individuals to protect their personal assets, as well as any business or investment assets. This type of trust can help level the playing field when it comes to personal exposure to creditors and lawsuits.
It is not just traditional creditors that a DAPT can protect you from. DAPTs also provide protection from legal complaints, malpractice claims, and a host of other financially consequential events.
A DAPT can allow you to shield yourself from the implications of lawsuits. Not only will this help you protect your financial health if legal action is brought against you, but it can also help you deter lawsuits from being filed in the first place. A creditor might be less likely to seek money from you if they know you have legal protections in place.
A foreign, offshore asset protection trust is an effective tool for protecting assets from future lawsuits and potential creditors. A trust is established under the laws of a foreign country and managed by a professional trustee not subject to the jurisdiction of the settlor’s home country.
An offshore asset protection trust can provide peace of mind to people like physicians, business managers, and entrepreneurs whose wealth makes them vulnerable to legal threats. In the United States, the cost of defending a lawsuit can quickly reach hundreds of thousands or millions of dollars. In the event of a lawsuit, assets placed in an offshore asset protection trust are extremely difficult to reach, even if the plaintiff gets a favorable judgment in a U.S. court. The most reputable offshore jurisdictions are the Cook Islands, Nevis, and Belize, which have favorable laws and court systems for asset protection trusts.
Once you’re ready to get started with a secure asset protection trust, ensure you have the
following prepared or at top of mind and then take action:
Should you choose to retain Mile High Estate Planning, we will meet with you (in person, over the phone, or via zoom) to understand what assets you want to protect and what your short- and long-term goals are. Once these goals are established, Mile High Estate Planning will draw up an asset protection strategy specialized for you. This may involve moving assets to certain places or creating various trusts in order to hold some of your assets.
Asset protection may involve executing a range of legal documents that transfer decision-making power over some of your assets to trustees. It may include steps to create various corporate entities and transferring your assets to these entities because of the protections that they provide. Then, you may need to shift other financial assets into certain accounts that are protected from creditors. For example, some states may have absolute protections for retirement accounts as well as other safeguards for other types of annuities that provide you with an income. The most important thing to remember is that your asset protection attorney will have to start putting the plan in place immediately because any asset protection steps that are taken after a lawsuit is filed may be considered a fraudulent conveyance and then disallowed.
Estate planning is an important step in ensuring your assets are preserved, managed, and distributed after death as well as ensuring your decisions are recognized in the event of your incapacity. Estate planning is important to strategize at any point in your financial planning journey. As part of your estate plan, an asset protection trust is a vital financial-planning tool in proactively protecting your assets (e.g., bank accounts, businesses, cash, stocks and shares, real estate, and more) from lawsuits, creditors, or other judgments against your estate so that your estate will be secure for generations to come.
A revocable trust is made while you are still alive. It will determine the disposition of your assets after you die. This is called revocable because it may be changed at any point up until your death while you still have the capacity to sign the document.
In a revocable living trust, you transfer your assets/property to a trust. You then sign a trust agreement, which creates the terms and conditions of the trust. Since the trust is revocable, you can make changes to the trust instrument during your lifetime and can maintain total control over your assets.
The flip side of a revocable trust is that you still own your assets in the eyes of the law. Therefore, a revocable trust is not an effective tool for protection from lawsuits and nursing home costs.
Through a revocable living trust, your assets will avoid probate, and you still maintain flexibility. This is a suitable alternative for one who wants to avoid probate and protect assets for future generations.
In order for your assets to be legally considered someone else’s property, the trust must be irrevocable. An irrevocable trust generally severs your ownership of the asset in the eyes of the law since the power to make decisions about the property is one of the major indications that you in fact own the assets/property. Once you have set up an irrevocable trust, the assets are no longer in your hands, and they are protected. However, your asset protection attorney can still build a great deal of flexibility into an irrevocable trust that will enable you to have a great deal of control and management of the assets.
If you would like to learn more about creating an Asset Protection Trust, contact Mile High Estate Planning today to schedule your free initial consultation at Info@MileHighEstatePlanning.com or by phone at 833-Ask-Blake.