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.
APTs 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.