Asset Protection Trust

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Asset Protection Trust


Trusts are an essential part of estate planning if you care to leave a legacy for your family. Trusts also help to minimize estate taxes, but there are various forms of trust. The asset protection trust is a type of trust with one purpose, protecting your assets from creditors. These trusts allow you to keep your assets protected if you happen to be part of a lawsuit, but they do a lot more as well. If you are interested, then it is essential to understand how an asset protection trust works, and the steps in creating one.

How Asset Protection Trusts Work


Asset protection trusts are different from other trusts in that they have one function, to shield your assets from creditors. Creating a standard trust involves simply passing on your assets, asset protection trusts are different.

Revocable trusts give you the ability to add or remove assets within the trust and continue to direct the trustee on how to manage those assets for your beneficiaries. Asset protection trusts must be irrevocable, which means that any assets transferred in, will be permanent.

Essentially by removing the assets from your name, and placing them into the APT, you give them an added layer of protection. They will then need to be managed by the trustee, but can not be touched in the event of a lawsuit.

Two Types of Asset Protection Trusts


There are two main types of asset protection trusts, domestic and foreign.

Domestic Asset Protection Trusts

Domestic trusts are established within the United States, which means they also abide by the laws of the country. There are different laws that govern each state, and in New Mexico, these laws provide safety with stability. This is why many people choose to form their asset protection trust in the United States because it offers stability.

Foreign Asset Protection Trusts

Also known as “offshore accounts” foreign asset protection trusts are governed through the jurisdiction they are formed in. Typically people from foreign asset protection trusts in countries such as Cook Islands, Nevis, Caymans, and Seychelles.

Benefit of Asset Protection Trusts


Protect Assets

Probably the most important reason someone would form an asset protection trust is to protect assets from creditors and if a lawsuit were to occur. Even if you are not planning to be sued or go through a lawsuit, you never know what will happen. This can protect your assets and your beneficiaries should you end up facing a lawsuit.

Safeguards Assets

Similar to protecting your assets overall, asset protection trusts safeguard your assets on behalf of your beneficiaries. Even if something were to happen with your business, such as negligence by an employee, your asset protection trust will protect you. Even when it comes to personal injury claims, your beneficiaries will be protected as far as your assets are concerned.

Skip the Probate Process

The probate process occurs after your death and is long and expensive. During the probate process, an executor collects your assets, pays off any lingering debts, and then distributes the remaining assets to your heirs. By having an asset protection trust in place, it makes it possible for your heirs to skip the probate process once you pass away.

Lower Taxes

Sometimes because you are transferring your assets into a trust, you can reduce the size of your asset and pay lower estate taxes.

Estate Planning Vehicle

Overall, an asset protection trust is an estate planning vehicle that allows you to help your beneficiaries avoid probate, and protect your assets. It is not something that will necessarily benefit you while you are alive, but it will allow you to pass along your legacy.

Funding an Asset Protection Trust

  • Cash
  • LLCs
  • Real estate
  • Small business interests
  • Bank accounts
  • Retirement accounts
  • Vehicles, boats, aircraft
  • Life insurance
  • Securities
  • Assets
  • Cryptocurrency
  • Intellectual property

Should You Start an Asset Protection Trust


If you have a lot of wealth that you are looking to protect, then an asset protection trust may be a good option for you. Especially if you are a business owner and want to keep your assets separate from that of your business, it can allow you to swiftly and easily pass down your assets to your beneficiaries upon your death.

Forming an Asset Protection Trust

There are a few steps to starting an asset protection trust. The first is legally setting it up with a lawyer. Then, you will need to fund the trust with enough assets that you wish to protect. Finally, you will need to transfer the assets properly. This will involve various hurdles to ensure it is done properly. It is good to note that an asset protection trust should never be created in your state of residence.

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