An Asset Protection Trust is there to protect your personal assets. This includes your personal property, business interests, and real estate. Assets are placed in the hands of trustees not eligible for creditor claims, and then those trustees hold the assets in trust until you decide when to use them again. Once the decision is made to use the assets, the trustee is sent instructions and they will then distribute the funds.
This process has been created to protect your assets and takes place while you are still in full control of how they are used.
Asset Protection Trusts Explained
An individual uses an asset protection trust (ATP) to protect their assets, often with the aim of shielding them from creditors. APTs are especially useful in protecting oneself against being sued by individuals for personal injury claims. These include wrongful death claims, litigation including product liability actions, medical malpractice cases, to name a few. The concept behind an ATP is simple: Should someone sue you, your assets will be protected.
Will you need an asset protection trust? Is it necessary? Creating a trust in your estate plan could be an excellent way to protect your legacy as well as your family’s. The type of trust you use will affect how much protection your assets enjoy.
Revocable Living Trusts
At present, revocable living trusts are gaining popularity. These, however, are not ideal for asset protection. If your goal is asset protection, a revocable living trust will not be the correct vehicle for your needs.
The person who creates the trust will retain control of the assets of your trust. They have the authority to remove any assets at any time, and they can also change the terms of the trust at will. The result is that the trust will still hold the title to the assets, but not the actual assets.
Should a creditor win a lawsuit against the person holding the trust, the court can order a pay-out of the assets in the trust as a settlement.
The advantage of a revocable living trust is useful in avoiding fees when the trust holder dies, but is much less useful for managing assets when they’re alive.
The Different Types of Asset Protection Trusts
An important point to note is that all asset protection trusts are irrevocable. Once created, it is almost impossible to reverse the terms and conditions or to terminate them entirely without the approval of the trustee.
The 3 most common trusts that protect your assets are the following:
1. Domestic Asset Protection Trust
Not available in all states, the domestic asset protection trust is perhaps one of the simplest to set up. It’s also one of the most flexible asset-protection laws available in the United States.
There are pros and cons to many of the different trusts, and one of the cons of the domestic asset protection trust is that the trust’s assets are held within the US legal system. This exposes these trusts and leaves them vulnerable to court orders.
They could be dragged into liens and judgments, bankruptcy laws, and other state litigation.
Which States Permit Domestic APT’s?
At present, there are 17 US states that permit domestic APT’s. These states are New Hampshire, Wyoming, Alaska, Hawaii, Missouri, Nevada, Mississippi, Delaware, Michigan, New Hampshire, Ohio, Rhode Island, South Dakota, Utah, Virginia, West Virginia, Oklahoma, and Tennessee.
And as domestic asset protection trusts gain traction, more and more states are recognizing their legal status.
2. Foreign Protection Trust
The foreign asset protection trust is also referred to as an “offshore trust.“ This type of trust is so named because it’s typically created offshore (outside the US). The downside is that these trusts typically are more expensive to set up than domestic APT’s. The upside, on the other hand, is that these offshore trusts have more privacy protection.
They also have the potential for added tax benefits, which makes them more attractive and a lot more effective than domestic ATP’s.
3. Medical Asset Protection Trust
MAPTs, or medical asset protection trusts, are trusts used to do away with or to reduce assets that are part of your total estate value. MAPTs could be valuable when planning a strategy for meeting Medicaid’s asset limit. This occurs when applicants have an excess of assets and want to downsize.
MAPTs protect the assets of a Medicaid applicant from being counted. Someone who would not usually be eligible for Medicaid could receive the treatment they need by establishing a MAPT, with care provided either in a hospital or at home.
The biggest advantage is that assets in a MAPT are not considered owned by the Medicaid applicant. MAPTs also protect the assets of relatives, making this kind of trust is a brilliant option for Medicaid applicants and their families.
The Steps Needed For An Asset Protection Trust?
Once you have decided to take that big step of placing your assets in an asset protection trust, the main question is how to go about setting this up. Who do you ask and where can you get the professional advice you need?
Saddock Wealth provides key financial solutions through creative approaches.
Selecting what legal parameters you need to establish a protective trust plays an integral role in this initial process. You will be selecting the laws that will protect your assets.
Put simply, selecting the offshore or domestic option is the deciding factor. Both options offer pros and cons. Which one will suit you best? Choosing a qualified and experienced planner is important.
Bear in mind that domestic asset protection trusts are less expensive to set up than offshore protection trusts, though both have merits worth looking into. Your financial advisor will steer you in the right direction.
Saddock Wealth Is Here To Assist
At Saddock Wealth, our years of wealth management experience can help guide you through the succession process. Get in touch with our team of professionals to ensure your asset protection plan is positioned for success.
We can go over what assets you would like to put in a domestic asset protection trust or an offshore potection trust and are here to help unpack and understand the bigger picture. Once we understand what your goals are, we will create a unique, customized plan just for you. Let us guide you along your financial journey.
Preserving and building wealth is what we do best, and it could be time to enjoy wealth and the long-term support we offer our clients.
Schedule a meeting here so we can discuss your best options.