What is an Asset Protection Trust, and Do I Need One?

Mr. Steven Mueller, Managing Partner

An Asset Protection Trust is a legal arrangement where assets are placed into a trust to shield them from creditors, lawsuits, or other financial claims, while still allowing the grantor, which is the person creating the trust, some control or benefit from the assets.

The general purpose of an Asset Protection Trust is to protect assets from legal judgments, bankruptcy, divorce settlements, or creditors.

There are generally seven types of people who need an Asset Protection Trust:

First are those High-Risk Professionals such as Doctors, lawyers, architects, or business owners who face potential lawsuits due to malpractice, negligence, or professional liability.

Second are Wealthy Individuals with significant assets who want to protect their wealth from creditors, lawsuits, or divorce settlements.

Third are Business Owners with personal assets at risk due to business debts or litigation.

Fourth are Individuals in High-Risk Industries that are prone to litigation, such as construction, real estate development, or finance.

Fifth are people Facing Potential Legal Threats such as civil lawsuits, divorce, or creditor claims.

Sixth are High-Net-Worth Families that are planning for generational wealth transfer while minimizing exposure to taxes or legal challenges.

And finally, Seventh, simply those people seeking privacy, those who want to keep assets confidential, especially with offshore Asset Protection Trusts in jurisdictions with strong privacy laws.

Now that we know who needs an Asset Protection Trust, let’s go over the structure of an Asset Protection Trust. There are Three main parties to an Asset Protection Trust: The Trustee, the Grantor and the Beneficiaries. In an Asset Protection Trust, assets are transferred to a trustee, and it is the trustee that manages the assets according to the trust's terms. The Grantor, sometimes referred to as the Settlor, is the person or entity who creates the Asset Protection Trust and transfers their assets into it for protection. Finally, we have the Beneficiaries, who are the individuals or entities designated to receive benefits from the Asset Protection Trust, such as income or assets. The grantor can name themselves as a beneficiary to retain access to trust benefits, but this must be carefully structured to maintain protection. Other beneficiaries may include family members, heirs, or charities.

Now that we know who needs an Asset Protection Trust, and we know who is involved in an Asset Protection Trust, we need to understand the Types of Asset Protection Trusts. There are two main types of Asset Protection Trusts, a Domestic Asset Protection Trust and an Offshore Asset Protection Trust.

A Domestic Asset Protection Trust is established in jurisdictions within the U.S., commonly Nevada or Delaware, with favorable laws.

An Offshore Asset Protection Trust is set up in foreign jurisdictions, commonly the Cook Islands or Nevis, and offer stronger privacy and protection laws when compared to the Domestic Asset Protection Trust.

So, we have touched on What is an Asset Protection Trust, Who needs an Asset Protection Trust, Who is involved in an Asset Protection Trust, and Where an Asset Protection Trust is Formed, and to wrap up this segment, let’s go over briefly the Key Features and Benefits of an Asset Protection Trust.

The three key features of an Asset Protection Trust are: (1) Irrevocability, most Asset Protection Trusts are irrevocable to prevent creditors from claiming the grantor still controls the assets. (2) Asset Protection Trusts have a Spendthrift Clause, which prevents beneficiaries from pledging trust assets to creditors. And (3) Asset Protection Trusts have an Independent Trustee, which is a third party that manages the Asset Protection Trust to maintain legal separation.

Finally, an Asset Protection Trust offers three key advantages: (1) it shields assets from lawsuits and creditors, (2) it can provide tax advantages in some jurisdiction, and (3) it offers estate planning benefits.

Most law firms charge thousands, if not tens of thousands of dollars to prepare an Asset Protection Trust, but with thousands of Asset Protection Trust prepared by the Syndicate Subscription Legal Plans network of Lawyers, Paralegals and Legal Assistants, we are able to include Asset Protection Trusts as part of all of our Individual & Family Subscription Legal Plans, saving you and your family thousands of dollars in legal fees and costs.