Establishing a trust offshore also provides extra protection from your local courtroom. It is also tax-friendly as offshore trust taxation is typically tax neutral. So, it does not increase or decrease your taxes. Moreover, it prevents a judge in your country from demanding that the trustee release funds or assets to a creditor.
How are domestic trusts different from offshore trusts?
However, domestic trusts do not offer the same degree of protection as offshore asset protection trusts. This is primarily because the trust assets are still held within one’s own local jurisdiction, and so are therefore more vulnerable to local court rulings.
Can a foreign asset protection trust be seized?
Although foreign asset protection trusts might provide effective protection from a U.S. court-ordered seizure of assets, they also expose the assets to potential economic and political risks associated with the jurisdiction in which the offshore account is held.
Can a US citizen set up an offshore trust?
Because an offshore trust is not considered a US person, you can use it to make investments and set up offshore bank accounts unavailable to you as a US citizen or resident. First things first, let’s iron out the definition of an offshore trust.
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If you’re hoping to protect your assets from lawsuits or creditors, several types of vehicles can help.
“There’s certainly more than one way to skin a cat, and there are lots of different tools that are being used to protect assets,” says Blake Harris, a Florida attorney whose specialties include asset protection.
Options for asset protection include:
- Domestic asset protection trusts
- Limited liability companies, or LLCs
- Insurance, such as an umbrella policy or a malpractice policy
- Alternate dispute resolution
- Prenuptial agreements
- Retirement plans such as a 401(k) or IRA
- Homestead exemptions
- Offshore trusts
Why Do You Need Protection From Lawsuits?
To put it bluntly, if you lose a lawsuit—one filed by a creditor, for instance, seeking to recoup the money you owe—you face the loss of assets such as your home, your car and money in your checking and savings accounts. Furthermore, a lawsuit can siphon money for legal fees, gobble up your time and energy, cause stress and damage your reputation.
“Really, the key with asset protection planning is doing it in advance, and the longer you can do it in advance of a lawsuit, the safer your assets will be,” Harris advises.
How to Protect Your Assets
The approaches to protecting your assets are almost as varied as the assets themselves. Here are nine ways you may consider shielding your assets from a court judgment.
1. Domestic Asset Protection Trusts
Attorney, accountant and author Mark J. Kohler calls the domestic asset protection trust “the most affordable asset protection tool” available in the U.S. This type of trust is aimed at protecting your assets from creditors.
This kind of trust “allows you to protect your accumulated wealth from future creditors so that you can pass your property on to your loved ones after you die. If you do not expect any risk of creditors in your future, you may not need this type of trust,” according to the legal website, Nolo.
According to Kohler, 17 states allow these trusts, which are set up as irrevocable trusts. In most cases, an irrevocable trust can’t be revoked or changed once it’s been created.
Assets in a domestic asset protection trust may include cash, stock, LLCs, business property and real estate. Keep in mind that the trust may be forced to pay obligations like child support, alimony and taxes.
2. Limited Liability Companies (LLCs)
A limited liability company, or LLC, houses the assets of a business. This legal structure can protect your personal assets from being seized by business creditors. In other words, your home, car or bank account typically would be safe from a business creditor, while your business assets in an LLC normally would not be safe.
Harris says an LLC is like a financial manhole cover. “You can put it on top of your assets, and if something toxic occurs with those assets, that liability is not going to bubble up and affect your other assets,” he says.
3. Insurance Policies
Liability insurance policies may protect your assets. Here are three policies that may safeguard your house, savings and other assets.
An umbrella policy supplements liability coverage you already have through a homeowners policy, an auto policy or another type of policy. Let’s say you’re hit with a $1 million court judgment as a result of an auto accident. Your auto policy contains liability limits that cap an insurance payment. For example, you might have a cap of $300,000 for injuries to others and $100,000 for property damage. If those limits are maxed out, an umbrella policy could cover the other $600,000.
Malpractice insurance can safeguard some of the assets owned by a doctor or other healthcare provider who loses a medical malpractice lawsuit.
4. Life Insurance Policy
Many life insurance policies are exempt from seizure by creditors who’ve obtained a court judgment against you. Whether cash values and death proceeds are entirely or partially protected varies by state. An annuity, a type of insurance contract, enjoys similar protections.
5. Alternate Dispute Resolution
Alternate dispute resolution, such as mediation and arbitration, can avoid a court case and help cushion your assets.
An employer, for instance, can benefit from alternate dispute resolution. As a condition of employment, a business might require an employee to resolve disputes through mandatory arbitration rather than through a lawsuit. Harris says this can be “an effective means of reducing your chances of being sued.”
6. Prenuptial Agreements
A prenuptial agreement, signed before a marriage, can protect certain current and future assets owned by a spouse rather than being jointly owned by the couple when they’re going through a divorce.
7. Retirement Plans
In most situations, a creditor can’t access your retirement plan. This can include an IRA or an employer-sponsored 401(k). However, a creditor may be able to tap into your retirement account if, for instance, you owe back taxes or past-due alimony payments.
8. Homestead Exemptions
In some states, a homestead exemption protects at least some of the value of your primary residence from most creditors. Certain states allow an unlimited exemption, while others cap the exemption amount. In Massachusetts, for example, the exemption limit is $300,000.
9. Offshore Trusts
Though not as common, offshore trusts may be an option for some segments of the population. For example, Harris says that one tool he uses to protect his clients’ assets is an asset protection trust in the Cook Islands, a nation made up of 15 atolls and islands tucked between French Polynesia and Samoa.
Firstly, diminishing the risks of having your assets threatened, and secondly if someone actually goes after you make sure that you decrease the amount they can get.
It is all about keeping what you’ve got.
So what are the assets that we are talking about here?
Usually, we are talking about financial assets. Those would be cash, physical real property, such as building or factory that you own, intellectual property, etc.
Some other things could be considered as assets, such as your credit.
Your reputation can also be an asset.
When talking about assets it’s important to distinguish personal from business assets. If things go badly, you will want to protect both, depending on where the threat is coming from.
What kind of threats are there?
The biggest threat to your assets is creditors.
So, if someone sues you, you go bankrupt and your assets are being seized. This is the most common scenario, however, you could also take a deeper look.
Some people want protection from government instability, extreme events, and all possible likely and unlikely scenarios.
How to protect your assets?
When thinking about the protection we need to know where the threat is coming from, inside or the outside.
You are probably familiar with the concept of limited liability companies. What this basically comes down to, is that the investor is only liable for the amount they put in the company, nothing more than that.
You can put some money into a company, the company might fail at doing business, might end up in massive debt, but that debt doesn’t come to you personally. They can go only after the amount that was put into the company. Quite convenient, right?
The corporate veil is designed to protect the shareholders from the liability of the company.
When there are outside threats it means that they are coming at the corporation.
Inside threats are threats from within, threats that are coming at the shareholders.
Imagine that you’re driving down the street, you crash into a girl that happens to be the daughter of a high powered lawyer. Let’s say that he sues you. Well, now everything that you have is at stake.
He can come after your house, your shares in the company, etc.
You would be in a very bad situation.
Needless to say, you need to protect yourself before something like this happens. When it already happens it can be too late.
Precautions to take
You will certainly want to prevent being sued.
This means that you will set up proper business practices. You will not use someone else’s trademark, for example.
If you’re charging peoples’ credit cards when you shouldn’t you’re putting yourself in danger. Anything that can hurt someone could put you in danger of being sued. So, the first logical step would be to simply not do any of those illegitimate things.
The second thing that you should do is decrease your visibility. This means that you will make it harder for others to see that you have assets. This is one of the reasons why we do international asset protection.
If my assets are overseas, it is very hard for someone to look up what my assets are. This gives me an extra layer of protection.
Third thing is to put many walls around you, many legal barriers. You want to make it very hard and expensive to go after your assets. In this case, many will not sue because it will be risky and expensive for them to do so.
These are ways that you can use to not make yourself low hanging fruit.
Be mindful where you operate
Not every jurisdiction is the same. Some countries have suing cultures, while in others it’s not so common. If you can choose where to operate always chose the latter.
Some places have very brutal laws when it comes to hiring people, there is a lot of risks that your employee might come after you.
In other places, this is not an option for them.
We talked about the value in hiring people abroad, so you can check our article ‘’You don’t get what you pay for, you get where you pay for’’
If I have contractors, in let’s say Ukraine, the probability of them suing me is incredibly low.
If I’m operating in Amsterdam, and hiring locals in the Netherlands, the likelihood of those people coming after me is very high. Also, the likelihood of them getting something from me is very high.
These might not be something that you factor into your wages, but can potentially be a huge deal that can break you.
Decrease the possibility of losing your assets
After you’ve taken precautions that we’ve mentioned above, it’s time to move to the next step.
You will want to split the things up.
For example, you can have an operating company and holding company.
If one company is liable, the other one doesn’t have to be.
If the assets are spread out this will be very useful.
If you’re in the US you will want to take advantage of many exemptions that you can take. For example, in certain states, they can’t go after your home in the case of a lawsuit, no matter how high the value of the property is. This is called the homestead exemption. Also, in certain places, your pension fund is protected.
Many people love using trust as a form of asset protection. We already talked about trusts. These are one of the main vehicles of asset protection.
These are all examples of how you can build many walls around you in order to protect your assets.
Asset protection is a very complex subject. Many things vary from country to country, that’s why it is very important to be aware of all the different laws.
If you want help with asset protection, or advice feel free to reach out to us.
Most asset protection “gurus” believe asset protection revolves around helping clients who have money protect that money from your “typical” creditor from a negligence suit. A few examples of a typical creditor are; someone injured from someone negligently driving a car, a patient who sues a physician for malpractice, or someone who slips and falls on property and sues the owner.
While it is true that clients with money do need to protect themselves from the “typical” creditor, there are many other creditors out there clients need to be protected from.
Asset protection can be done domestically or offshore . Domestic asset protection revolves around the use of LLCs and FLPs. To learn more about these asset protection tools, click here.
To read a summary on offshore asset protection, please click here.
Who are other common creditors clients don’t think of as a “typical” creditor?
The IRS and state government (if you have a state income tax ). The IRS is everyone’s number one guaranteed creditor every year. Every year high-income clients pay taxes to this creditor. Would you like to pay $15,000, $50,000, $100,000+ less in income taxes this year? Absolutely. That’s what our firm may be able to help you accomplish.
The stock market . You know this is the case if you had money invested from 2000-2002 when the stock market lost nearly 40% of its value and again when the stock market crashed between 2007 and March of 2009 when it lost 59% of its value. Think about it, did you lose money from 2000-2002 and again in 2007-2009? Absolutely. Would you like to position your money in wealth-building tools with good potential for growth and still principally protect all or the majority of your money? Would you like to earn a 7%-8% guaranteed rate of return (accumulation value) over a 10-20 year period coupled with a guaranteed lifetime income you can never outlive?
Estate taxes . Clients with wealth all worry about the estate taxes that will be paid upon their death. Few advisors truly know “advanced” estate planning and ways to mitigate estate taxes. Our firm specializes in helping clients reduce their estate taxes through supercharged gifting strategies, charitable planning, and many more tools that are not well known by the “average” advisor. To learn more about estate planning tools you can use to mitigate or avoid estate taxes, please click here.
Long-term care (LTC) expenses . The number one guaranteed creditor of clients over the age of 65 is LTC expenses (drug costs, home health care, nursing home, surgeries, etc.). It is vitally important for clients to protect themselves from this guaranteed expense. Most clients do not like the idea of paying LTC insurance expenses because it is seen as a waste of money if you don’t use it. Our firm specializes in using products to build your wealth such as FIAs and single premium life policies that have their own unique wealth-building or transfer features that include an LTC benefit. To learn more about how to protect your estate from LTC expenses, please click here.
To view a brief video presentation on asset protection, please see the video below.
Developing your riches isn’t excessively troublesome. You simply need to reduce your costs, spare and contribute carefully. The tricky part is keeping the amassed wealth in the coffers.
Leasers, litigators, and the government are only a portion of the dangers to your assets. Whenever given the opportunity, they will attempt to crush each penny from your bank account.
That is the reason you have to have concrete asset protection strategies. Creating successful protection strategies is of real importance to protect as much of your domain as could be expected for you and your beneficiaries in the not too distant future.
A powerful asset protection strategy will assist you with withstanding and stay up high during a financial disruption. Asset protection techniques are made to shield your personal and business riches from dangers, for example, claims, cases, bankruptcy, and separation procedures.
Regardless of whichever industry you have a place with, you have to set up compelling asset protection strategies. Irrespective of whether you own an independent venture or an enormous company, making asset protection strategies is an unquestionable requirement.
Furthermore, one of the best procedures that can assist you with safeguarding your wealth is making offshore trusts.
Offshore Asset Protection Strategies
The most grounded Asset Protection you can build up is an offshore strategy, including an LLC and a Trust. What offshore asset protection does, is it eliminates your whole asset portfolio out of the U.S. lawful framework.
You basically put your assets into a legitimate framework that has the most grounded asset protection laws on the planet. With this sort of asset protection strategy, you are in 100% control of every one of your assets.
When there is a period of legitimate pressure, the offshore trustee can step in to secure you. The trustee isn’t dependent upon your nearby court orders. So they can decline to comply with demands to bring back the assets.
A trust protector, who you assign to regulate the asset management, can administer the trustee. Meanwhile, you can prompt the trustee with regards to how you need the trust company to invest your assets.
Why Go Offshore?
Setting up an offshore trust company in the Cook Islands or Nevis is one of the most grounded asset protection strategies. At the point when you have an offshore asset protection plan, it ties the hands of the nearby appointed authority.
They don’t have jurisdiction over foreign trustees. Besides, a lawful opponent should then overcome tremendous lawful obstacles to compromise your wealth.
Your assets are situated in another jurisdiction. This implies if your legitimate opponent seeks after them, they should seek after them in that jurisdiction and through its lawful framework.
Now your legal enemy needs to post a massive number of dollars with the goal that a council will survey the case. The council surveys if they will even permit their courts to hear the case.
You can open an offshore bank account now to enjoy the benefits.
How Does It Work?
- The customer sets up an appropriately organized offshore asset protection trust.
- So that the customer can control everyday exercises, the customer builds up an Offshore Limited Liability Company that the trust claims 100%. The LLC holds accounts. The customer manages LLC. (Line of control = Manager of LLC.)
- When there is an occasion of lawful pressure against the Manager of the LLC, the trustee is compelled to ensure trust assets by a sense of honor. By then, they eliminate the Manager for the period that the occasion of pressure exists. At the point when the period of pressure is finished, the trustee can reappoint the Manager.
Offshore Asset Protection Strategy Benefits
There are many benefits to offshore asset protection strategies:
- Since the customer can control everyday exercises, the customer is the Manager of Offshore LLC.
- Outside courts don’t have jurisdiction over an offshore trustee, subsequently don’t have the power to implement seizure of trust assets.
- At the point when the Manager is under legal duress, the trustee must eliminate the Manager for the time of the lawful pressure and take up the dynamic administration of the LLC. At the point when the trustee is the Manager, the trustee can acknowledge counsel from the free lawful counselors of the customer (the grantor of the trust).
- The customer can win the fraudulent transfer argument because there is no exchange of assets. Just the difference in the LLC manager happens, which doesn’t include asset transfer.
- In the event that transferred are moved after legitimate issues emerge, the legal time limit on fraudulent transfer is 2-years. Additionally, an offended party must demonstrate this in offshore jurisdiction’s courts past a sensible uncertainty. This is an extremely high lawful obstacle, particularly when one can offer legitimate international investing and expansion reasons.
Offshore asset protection can, unfortunately, be related to a stigma of criminal or evasive cash management. Asset protection is certainly legal when done correctly, and we strongly propose doing your research and addressing a counselor as required.
Business Setup Worldwide is a solitary platform having the answers for each one of your questions. Contact us today for any inquiries. We would be happy to help.
Special needs trusts are set up to benefit persons who are minors, mentally/physically disabled, or suffer from long-term illnesses that render them unable to carry on fiduciary activities.
These trusts provide a way to protect assets and can be seen as “asset reservoirs.” The disabled person may receive an inheritance or an accident benefit settlement, or contributions from well-wishers.
Government programs are designed for people whose income is too low to support their needs. Hence, a person with a disability who has an income above the specified limit will not be eligible to receive these benefits.
Special needs trusts enable beneficiaries to receive a regular income without jeopardizing their ability to receive supplemental benefits from government sources that they are eligible for.
How Do Special Needs Trust Work?
A typical trust must have three elements in it:
- The donor who is responsible for funding
- The trustee who administers and holds the funds based on the wishes of the donor
- The beneficiary who is the recipient of the funds
In general, the donor expresses her/his wishes in a written document that gives specific instructions on how the funds are to be managed, distributed, and monitored.
This is to ensure the best outcome for the person with special needs. A trust document is something that can be referred to even after the death of the donor and held as legally binding on the trustees.
Special needs trusts follow these broad guidelines, but they have certain special features as well.
- They help to cover the portion of the financial requirements of the special needs person that may not be met by government/public benefits
- They are tailored to sync with the unique needs of the individual beneficiary
- Certain types of special needs trusts are irrevocable and cannot be overturned even in a lawsuit, to access funds meant for the use of the beneficiary are generally used for purposes such as medical requirements, transportation, care-taker services, etc. based on the list of permitted expenses
- Greater amount of thought and care goes into choosing the trustees. They are usually family members or persons appointed by the court
Why Are There Different Types of Special Needs Trusts (SNT)?
Different types of special needs trusts have come into existence because they need to comply with regulations of the Supplementary Security Income (SSI) that is a government initiative to assist low-income people with special needs.
This scheme mandates that applicants should have not more than $2000 in their names. If there is an excess of income, the applicant can still qualify for SSI if these excess assets are parked in a first-party SNT.
The funds in this trust must be used for specified benefits of the special needs person during their lifetime. After their death, the remaining funds in the trust revert to the government as reimbursement for medical expenses made during the special needs person’s life.
The law allows anybody to establish an SNT that can be drafted in accordance with the donor’s own requirements of reducing their taxable assets.
SNT’s are advantageous because they enable larger amounts of money to be contributed to the trust without affecting eligibility to receive federal benefits.
The beneficiary can use large amounts of trust funds for a variety of needs whenever it’s required. The trust does not pay any income tax on any income that it earns if it can be shown that all the income is passed to the beneficiary.
Types of Special Needs Trusts
There are two main types of SNT’s: Third-party trusts and First-party (self-settled) trusts. Pooled trusts may also be set up.
Third-Party Trust: This is the most common vehicle used to convey benefits to a person with a disability by parents or other family members. A third-party trust is funded by the assets of the third party that may consist of parents/relatives etc.
It also allows people to give gifts or bequests in the future into the trust without affecting the Medicaid or SSI benefits that the beneficiary is eligible to receive.
A donor can also name the person with special needs as the beneficiary of life insurance. The third-party trust can also benefit a senior as well as a person with a disability in terms of Medicaid eligibility.
Once the trust has been in existence for more than five years, the assets available in the trust can be used to fund long-term care, nursing home, etc.
Third-party SNT can also be included in the will or Living Trust of an individual who wishes to contribute to it.
The income from the trust is distributed only to third parties for goods and services rendered, and not directly to the beneficiary. This allows the donor to manage their own tax goals more effectively.
An important aspect of SNTs is that the government need not acquire the funds remaining in them on the beneficiary’s demise as reimbursement for Medicaid etc.
The trust remains in control of distribution of remaining assets on the demise of the beneficiary.
This is a type of trust that is also termed a “self-settled” trust because it uses funds owned by the person with a disability. However, it must be established by a parent/grandparent/guardian of the person with a disability or by the Court.
It can benefit only the person with a disability and cannot be established if the beneficiary is above age 65. An important difference between first and third party trusts is that any funds remaining in first-party trusts must be used to reimburse the government for Medicaid expenditure incurred during the lifetime of the beneficiary.
First-party trusts don’t provide as much flexibility in terms of tax planning as third party trusts.
First-party trusts are usually set up when a person with a disability inherits a large sum of money or receives a large court settlement in a tort case.
These trusts are also useful if someone who has considerable assets in her/his name becomes disabled due to an accident/illness/injury. The beneficiary must meet the government requirements for the definition of disability.
Pooled Trusts are another type of SNT created by a non-profit organization that benefits several individual beneficiaries who are “pooled” within it.
The funds can be used to cater to the needs of diverse persons whose income levels may differ.
It’s important to thoroughly evaluate the circumstances, needs, and preferences of the person with a disability and the donor while setting up an SNT.
This is best done in consultation with a reputed, well-established professional experienced in special needs financial planning.
If you have more than $10,000 in offshore bank accounts, failure to follow the declaration process can put you in the crosshairs of the IRS.
What does this mean for you?
If the IRS thinks you owe money or have undeclared offshore financial assets, that means the possibility of wage garnishments, bank levees, seized assets and even prison time.
Is it really that harsh? Yes.
When taxpayers do not abide by the Offshore Voluntary Disclosure Program, the IRS will take 50 percent of the value of the account, assess penalties, and possibly file criminal charges.
How can you avoid this fate?
It is crucial to have an experienced tax defense advocate on your side. People across the nation have relied upon the tax defense lawyers of Silver Tax Group to protect their interests and you can benefit from our services, too.
Our firm has the means to deal with the complex processes and procedures of:
- Form 114 — Report of Foreign Bank and Financial Accounts
- Form 8938 — Statement of Specified Foreign Financial Assets
We combine the strong representation you need against the IRS with the one-on-one service you need during a difficult time in your life. You can rely on our experienced tax attorneys to answer your questions every step of the way and provide the peace of mind that comes with knowing you have a proven advocate on your side.
WHEN YOU HIRE US, WE CAN HELP YOU:
- Obtain emergency relief from IRS actions
- Stop the IRS from garnishing your wages
- Prevent levees from being placed on your bank accounts
- Keep tax payments and penalties from spiraling out of control
We are always available to answer your questions and put your mind at ease. Call us today for a free initial consultation
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Those with assets in foreign bank accounts of over $10,000 are required to file the proper documentation with the IRS, including a Report of Foreign Bank and Financial Accounts(FBAR). Failure to do so leads to numerous penalties. Even the most business-savvy individuals can instantly find themselves facing unexpected issues related to compliance with the Foreign Account Tax Compliance Act (FATCA) when they fail to make FBAR disclosures.
Under most circumstances, the IRS requires reporting of offshore income and accounts. It doesn’t matter if you qualify for benefits under the Foreign Earned Income exclusion or the Foreign Tax credit. To be eligible for such tax benefits, you must first file a federal income tax form.
The law requires for American citizens and resident aliens to report offshore income. The chief concern is to identify all foreign accounts you may hold. And if the value of financial assets exceeds specific thresholds, you will need to report those assets as well. You must report all foreign financial accounts with values greater than $10,000.
There are a large variety of rules concerning filing extensions. For example, military members in combat zones may have additional time to file their returns.
Do you file correctly?
As there has been a great amount of confusion regarding offshore filing requirements, it is important to not file returns based upon incorrect assumptions. While the filing requirements are extremely complex, this does not mean the IRS will be forgiving if information submitted is incomplete or incorrect.
Contact us today for a free case evaluation. Issues over foreign bank accounts, taxes and offshore assets do not have to ruin your life.
The median net worth of the average American family is $121,700. Protecting these assets ensures they’re still available for children, grandchildren, and other beneficiaries. Trusts are one of the most common estate planning documents, and there are several types. An asset protection trust is specifically designed to protect your assets from creditors, lawsuits, and other actions that may make them unavailable for your beneficiaries after your death.
This type of trust is a complex estate planning document that can be difficult to understand and create. Read our guide to learn the answers to 5 of your most burning questions, including what is an asset protection trust, how do I create one, and what benefits can it provide?
Table of Contents
1. What is An Asset Protection Trust?
An asset protection trust, also known as an APT, holds and protects your assets after your death. Once everything is transferred, it shields them from creditors, lawsuits, and other judgments against your estate. There are 2 types; domestic and foreign or offshore asset protection trusts.
A domestic APT protects assets in the United States. It’s more affordable but leaves you and your beneficiaries at risk of losing your assets to liens, judgments, bankruptcy, or state laws.
A foreign or offshore ATP holds assets in an offshore account outside of the U.S. It’s more expensive but offers additional protection for and lower taxes on your assets.
2. What are the Pros and Cons?
Estate planning is the process of determining the right methods of distributing and protecting your assets. Comparing all your options will help you make the right choice.
Don’t put yourself through the process of creating an asset protection trust before you’ve determined if it’s the right option for you. There are several pros and cons of the document you need to know.
An asset protection trust protects your assets from creditor lawsuits. It ensures that your estate will always be available for your beneficiaries and can’t be taken away from them. This is its main purpose and primary benefit. The trust can also help you remove assets from an estate. This may seem counterproductive, but it can make it easier for you to apply for Medicaid.
An APT also offers tax benefits. It can reduce or eliminate your state income taxes. It can also remove assets from your estate so that beneficiaries don’t have to pay taxes on them but can still benefit from them.
Creating an asset protection trust is a complex process. You’ll need a skilled estate planning attorney and several other professionals to help you. An APT is an irrevocable trust. It creates a permanent transfer of assets, preventing you from changing your mind and creating a new agreement later.
The trust also doesn’t offer complete control to your beneficiaries. Provisions like the spendthrift and discretionary clauses limit the access and control they have over the assets.
Asset protection trusts are best for wealthy individuals with high-risk occupations like doctors and real estate developers. It’s also a useful alternative to a prenuptial agreement. If you have a small estate and aren’t at risk for creditor action, you may want to consider another estate planning option.
3. Which States Allow Them?
The answer to a question like “how does an asset protection trust work” depends on where you live. They’re not legal everywhere and regulations differ.
17 states currently allow for the creation of asset protection trusts, including:
- New Hampshire
- Rhode Island
- South Dakota
More states may allow for this type of trust as it becomes more popular. Check your local regulations and work with a lawyer who understands them before setting one up.
4. How do I Set One Up?
An asset protection trust contains all your assets and determines where they go after your death. You’ll need to set it up in advance by following a predetermined process. Start by consulting an asset protection trust attorney. They’ll help you understand important aspects like federal and state laws and tax rules.
Once you’ve found your attorney, you’ll have to create an assets trust agreement. This will involve naming a trustee and successor trustee(s) and one or more beneficiaries, choosing which assets to transfer, and creating a draft.
The next step is to fund the agreement by transferring assets to it. You can use:
- Business or recreational assets
- Real estate
Transferring your assets is the most important part of the process, and you shouldn’t complete it on your own. You’ll need a team of financial planners, lawyers, and insurance brokers. They’ll evaluate each asset based on legal protection, taxation, business and growth potential, and other factors.
Creating an asset protection trust is one of the best ways to protect your estate from creditors, but it can be a long and expensive process. Depending on the complexity, it could cost you $5,000-$20,000 to set up.
5. Where Can I Find the Right Lawyers?
Finding the right team is the best way to ensure that your asset protection trust is complete, legal, and meets your needs and desires. You should look around and compare your options to find the best experienced professionals to help you.
Your asset protection attorney is one of the most crucial members of your team. They understand estate planning laws and will help you create a proper trust agreement. Smith Baird is a reputable law office that specializes in estate planning. Get more information on their services to learn what they can do for you.
Where Can I Learn More?
There are several types of legal agreements that may be part of your estate planning strategy. An asset protection trust is one of the best for high-risk individuals with large estates. Creating this legal agreement involves transferring all of your assets while complying with federal and local laws. You’ll need a team of professionals, including an asset protection attorney.
If you’re just beginning your estate planning journey, you’ll have more questions than just “what is an asset protection trust?” Read the rest of our content for more of the information you’ve been searching for.