In general, a trust is a written agreement between three parties, the settlor (the person who places their assets in the trust), the trustee (who manages the assets), and the beneficiary (who receives the benefits of the trust). Asset protection trusts are different from the others kind of trust where the settlor and beneficiary can be the same individual.
The main purpose of an asset protection trust is to protect your assets from creditors and lawsuits. When you fund this trust, you transfer your assets to the trust on a permanent basis. It can’t be undone. Your trustee gets ownership and manages your assets. By transferring your property to a trustee name, you keep your assets safe from creditors and lawsuits.
How do Asset Protection Trusts Work?
If you manage your personal finances well, you can have enough assets to pass on to future generations. But having adequate assets doesn’t guarantee that your future generations can benefit from your hard work. Setting up an asset protection trust ensures that your assets are safe from creditors and lawsuits.
To fund an asset protection trust, you need to take two steps. First you need to create a trust document. It consists of basic items like choosing a trustee and beneficiaries. You may additionally need to specify how you want the trustee to manage your assets on behalf of the beneficiary.
After you have created the documents, you need to fund the trust. Funding depends on the type of assets you wish to transfer to the trust. You may need to set up an LLC to fund an asset protection trust.
There are two types of asset protection trusts. One domestic and the other offshore. Domestic asset protection trusts are cheaper and more convenient to set up. Some states have asset protection trust laws. However, this kind of asset protection is within the US legal system. So your assets may be exposed to the risk of adverse court orders and federal bankruptcy laws.
On the other hand, offshore asset protection trust is guaranteed. The laws of foreign countries govern it. Even if your creditors win the case, they cannot easily go after your assets. Companies like Mile High Estate Planning: https://www.milehighestateplanning.com/bridge-trusts has created an asset protection trust for many individuals according to their asset protection needs.
Why are Offshore Asset Protection Trusts Preferred?
As previously mentioned, foreign laws govern offshore asset protection trustees. In order to pursue assets held abroad, your legal opponents should seek the help of international legal counsel. This is a really expensive and time consuming legal hurdle. In addition, the opponent must win the case to gain ownership of the asset. Therefore, there are several challenges before one can buy assets held offshore.
What Happens During a Lawsuit?
During the course of a lawsuit, the trustee may represent as trustee manager. Remember, managers aren’t owners. Even if your opponent asks you to collect funds from your trust, your trustee can trigger a coercion clause. It will not allow the courts to hold you accountable and the manager will not must send funds from the trust.
What about Taxes?
Trusts must comply with income tax laws on behalf of beneficiaries. This is “Tax Neutral” for the settler or giver. Thus, settlers keep only a portion of the income. It belongs to your own form 1040, because you do not retain the assets in your name.
However, the asset protection trust is irrevocable. That is, you can’t change the name of the beneficiary. Even beneficiaries don’t have the right to change names or opt out. If your creditor comes after your property, your trustee will step in and protect your assets.
Could the Trustee Get Away With the Assets?
It is highly unlikely that the trustee will be capable to get away with the assets. Trustees need to experience extensive background checks to obtain a license to hold assets. Checks make sure that the trustee is reliable. Second, your assets are insured. You can be free from worries about the security of your hard-earned money.
Housing Planning
In order for your assets to be distributed evenly amongst your loved ones, you need a reliable housing planner. It takes proper planning to sail smoothly through personal and legal processes. Having a properly structured trust helps you avoid costly and lengthy probate processes. In addition, you can even minimize property taxes.
Final Thoughts
Asset protection trust is the best solution for people who are concerned about the security of their assets. If you are at high risk of facing a lawsuit against your assets, you should seriously consider setting up and funding an asset protection trust.
With an asset protection trust that secures your assets, you safeguard your wealth for future generations. Plus, you can avoid costly and legally risky probate processes.
