Asset Protection Trust - Explained
What is an Asset Protection Trust?
Written by Jason Gordon
Updated at April 8th, 2023
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Back to: INHERITANCE, ESTATES, & TRUSTS
What is an Asset Protection Trust?
An asset protection trust is a vehicle that protects a person's assets from creditors by holding them on his behalf. It provides a way for debtors and creditors to avoid costly litigations and encourages parties to settle on terms favorable to both of them. This trust is irrevocable and also has a spendthrift clause. The distributions of an asset protection trust only occur at the discretion of an independent trustee.
How Does an Asset Protection Trust Work?
The assets held in asset protection trusts are not recoverable by creditors. For example, assets held in trust are protected from attachment in judicial proceedings against the beneficiary by parties like suppliers, customers, and family. Banks are also a part of the asset protection structure. They often manage the trusts. The laws governing governing the trust relationship provide for increased confidentiality and security. Some bank laws in offshore jurisdictions like Panama are even more protective of beneficiaries, unless they suspect money laundering or criminal activity. A trust agreement is created when a trustor transfers assets to the trust and then gives legal control of these assets to the trustee. The trustee then manages and controls the assets for the benefit of one or more individuals. The trustee may, in some cases, also be a beneficiary. Despite the alluring security and privacy that asset protection trusts provide, one should note that assets should not be transferred to this trust when there are imminent or ongoing legal actions against them. Any attempt to do that would be considered a fraudulent act. The only way to do it is to design an appropriate asset protection structure in advance.
Related Topics
- Succession Planning
- Chartered Trust and Estate Planner
- Conservatorship
- Probate
- Cy Pres Doctrine
- Exordium Clause
- Non-Contestability (No Contest) Clause
- Bequest
- Per Stirpes
- Ademption
- Abeyance
- Elective Share
- Escheat
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Qualified Domestic Relations Order (QDRO)
- Declaration of Trust
- Uniform Gifts for Minors Act
- Acceptance of Office by Trustee
- Beneficial Interest
- Asset Protection Trust
- Bare Trust
- Blind Trust
- Charitable Lead Trust
- Charitable Remainder Trust
- Charitable Remainder Annuity Trust
- Charitable Gift Annuity
- Credit Shelter Trust
- Discretionary Trust
- Generation Skipping Trust
- Grantor Trust Rules
- Living Trust
- Inter Vivos Trust
- Revocable Trust
- Irrevocable Trust
- Irrevocable Income-Only Trust
- Qualified Domestic Trust (QDOT)
- Qualified Terminal Interest Protection Trust (QTIP)
- ABLE Account
- Accumulated Income Payments (Canada)
- Charitable Split-Dollar Insurance Plan
- Coverdell Education Savings Account
