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An asset protection trust (APT) is a type of trust that keeps a person’s assets in order to protect them against creditors. Asset protection trusts provide the most comprehensive defense against creditors, lawsuits, and any judgments against your estate. An APT can even assist prevent costly litigation from occurring in the first place, or it can positively affect the result of settlement negotiations.

It should also be noted that although foreign asset protection trusts may provide effective protection from a U.S. court-ordered asset seizure, they also expose the assets to potential economic and political dangers connected with the offshore account’s location.

Asset Protection Trusts: An Overview

A self-settled asset protection trust allows the grantor to be named as a permissible beneficiary and have access to the monies in the trust account. The purpose of the APT, if correctly designed, is to prevent creditors from accessing the trust’s assets. A domestic APT provides asset protection as well as additional benefits, such as state income tax savings if you live in a no-income-tax state.

woman and child holding small house figurineAPTs must meet a number of rigorous regulatory requirements, including being irreversible. APTs allow for payouts on a sporadic basis, but only at the discretion of an independent trustee. These trusts also include a spendthrift clause, which prohibits the beneficiary from selling, spending, or giving away trust assets unless certain conditions are met. Asset protection trusts are a complex type of trust that is not suitable for everyone.

The Two Types Of APTs

Domestic asset protection trusts and international (or offshore) asset protection trusts are the two types of irrevocable trusts that serve as asset protection vehicles.

APTs In The United States

Domestic asset protection trusts have some of the most flexible asset protection trust legislation in the country. If you choose to use one, you can do so swiftly and easily in the 17 states that do so now: Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. As these trusts become increasingly popular, more governments are recognizing their legal standing.

asset protection meetingThe major disadvantage of domestic trusts is that your assets remain subject to U.S. legal jurisdiction, putting them at risk of court orders such as liens or judgments, as well as federal bankruptcy statutes and state regulations. Furthermore, because domestic APTs are new, they lack the credibility of established case law, which may be disastrous if your estate were to face a lawsuit or judgment.

Foreign APTs

Because they’re frequently held in an offshore account, foreign asset protection trusts are sometimes known as “offshore” trusts. These trusts are set up in countries other than the United States, such as the Cook Islands and the British Virgin Islands. Although they are typically more expensive than domestic counterparts, overseas asset protection trusts feature more severe privacy protections than their American counterparts, providing even more effective asset protection. Another advantage is that nations that portray themselves as offshore tax havens rarely enforce U.S. judgments against the assets of trusts formed in their jurisdictions.

APTs Are A Complex Type Of Trust

You should properly grasp asset protection trusts and its implications before establishing one. The majority of people use their financial adviser to assist them set up these trusts.

Investing In An APT

It helps to be affluent, or at least financially comfortable and diverse, to consider an asset protection trust, because APTs don’t assist anyone until they’re financed with assets. 1) cash, 2) securities, 3) limited liability corporations (LLCs), 4) company assets including intellectual property, inventory, and equipment, 5) real estate, and 6) recreational assets like aircraft and boats are all examples of trust assets.

Transferring Assets

affluent couple with their assets protectedThe transfer of assets to the APT is a significant procedure that necessitates bringing together a diverse group of qualified and trusted specialists, ranging from financial advisors and lawyers to insurance brokers and everything in between. Then there are some difficult legal barriers to overcome, as each asset considered for transfer into an APT must be assessed from a variety of perspectives, including legal protection, taxation, business and growth potential, and future distributions to spouses and heirs.

Other Things To Think About

Finally, because the location of the trust’s assets could be decisive in a tightly disputed court struggle, an APT is meant to have its most significant tie to the state where the trust is formed—not the settlor’s place of domicile.

As a result, it may be prudent to consider transferring some assets into an LLC on a case-by-case basis, such as stocks and cash accounts, valuable and dangerous commercial and recreational assets, real estate, and settlor firms.

Seek Guidance From Matador Insurance Services

If you have any questions, concerns, or are simply ready to proceed in taking the next steps toward asset protection, please take a moment to reach out to Matador Insurance Services online or request a consultation. We can help you to plan accordingly to ensure that your assets truly are protected for long term investments.