Pros and Cons of Asset Protection Trust

Creating a trust, such as a set revocable living trust, is a common way to protect your family and safeguard your legacy. An asset protection trust (APT) takes it one step further by providing more protection for your beneficiaries. The amount of protection varies depending on the type of asset protection trust you choose and the laws in your state. For those with more assets, a  trust can help protect wealth  from creditors and pass them on to their spouse, children, or other beneficiaries. 

An asset protection trust  is a self-settled trust vehicle that holds an individual’s assets to shield them from creditors or frivolous lawsuits. The grantor can be designated as the permissible beneficiary allowed access to the funds. Asset protection trusts offer the most robust protection from creditors, lawsuits, or judgments against your estate. An APT can even help deter costly litigation before it begins or influence the outcomes of settlement negotiations favorably. 

There are two main types of asset protection trusts: domestic and foreign. Domestic asset protection trusts are established under state law and provide varying degrees of protection depending on the jurisdiction. Foreign asset protection trusts are based in countries that honor the enforcement of such trusts and often provide more stringent protection than domestic trusts. Additional benefits include privacy, access to banks and custodians with higher capital adequacy requirements than those found in the U.S. and foreign currencies and highly skilled money managers and advisors. 

Creating an asset protection trust has its pros and cons. On one hand, it can help protect your property and large sums of money from potential creditors or lawsuits. By transferring your property to a trustee, you can draw on your trust as needed without risking seizure by creditors. On the other hand, estate planning lawyers warn of the given complexities of this type of trust. 

A crucial part of any tax and estate planning advice process is to ensure the safety of what you already have — which can be accomplished through future proofing your wealth or asset protection. A debtor’s living trust allows individuals to transfer their assets into a trust, making them more difficult for creditors to access. This type of trust helps debtors protect their assets from creditors who may try to attach them in case of a lawsuit or judgment against the debtor. If a creditor wins a judgment against someone, all their assets are considered assets and can be taken away. However, with an asset protection trust, keeping your assets safe from creditors and avoiding losing them if someone files a creditor claim or lawsuit against you is possible. 

A wealth advisor can  help you navigate important tax and estate planning issues and guide you on solutions such as asset protection strategies to help protect your hard-earned wealth.