Wondering how to set up an asset protection trust (APT)? Asset protection trusts can act as an estate planning tool that works to protect your assets from creditors or legal actions. Although you can set one up online, it’s wise to work with your team of financial advisors and attorneys to create an asset protection trust. Not all states allow domestic asset protection trusts and your advisor/attorney may have some insight into other options you have as well as the restrictions on those you do.
If you’re considering setting up an asset protection trust, here are some of the main points you need to know.
What is an asset protection trust?
An asset protection trust is an irrevocable trust — meaning that it cannot be modified, amended, or terminated without permission from the beneficiary — that is an advantageous high-net-worth estate planning tool for individuals looking to protect their assets and their legacy from harsh creditors while also protecting them from estate taxes.
An asset protection trust whose beneficiaries are part of the family is referred to as a “family asset protection trust”. Whereas an asset protection trust whose beneficiaries are non-family, such as friends or charities, is referred to as a “living asset protection trust”.
What is the benefit of an asset protection trust? APTs are different from all other trusts as they are created with the sole purpose of shielding your assets. Revocable living trusts — or a trust that names a trustee to administer the trust on behalf of the grantor — for example, can still be sought after by creditors, lawsuits, or judgments made against your estate.
Types of asset protection vehicles
Asset protection trusts can come in two different forms: domestic asset protection trusts and foreign asset protection trusts. As previously mentioned, not all U.S. states allow domestic asset protection trusts and if they do, they likely come with some restrictions.
The state of Texas is one of the states that does not allow domestic asset protection trusts. In this case, and depending on the advice from your advisors and attorneys, a foreign (also known as an offshore) asset protection trust might be an alternative option. Foreign asset protection accounts are held through countries outside of the United States and can provide a more private option but are often more expensive than domestic asset protection trusts.
Can I protect my assets with a trust?
If you are concerned about your assets being roped into a lawsuit or court judgment, an asset protection trust may offer the strongest protection available. This is especially true if you are considering different aspects of financial planning for business owners. For business owners specifically, an asset protection trust could protect assets from personal injury claims and lawsuits stemming from defaulted business loans.
Asset protection trusts may also safeguard your assets for your family as they are not subject to the probate process upon your passing. This means that rather than first being assessed by an executor to pay off any remaining debts before being distributed to your heirs, the assets would go directly to those you love.
Keep in mind that setting up an APT does not protect your assets from federally-ordered seizures of assets or from economic/political risks of the country to which a foreign account is held. As an irrevocable trust, you also cannot take transferred assets back out of the trust once they have been moved into it.
How to set up an asset protection trust
There are typically two parts to setting up a trust: creating it and funding it. Due to their complexities, it’s best to enter into an APT with the help of your wealth manager and estate planning attorneys as part of your retirement planning in Houston. They know how to set up an asset protection trust in a way that will be most advantageous to your goals, work to save you money come tax time, and limit potential risks.
Here are the basic steps to setting up an asset protection trust:
- Choose a trustee and name the trust beneficiaries
- Decide how you want the trustee to manage the assets
- Transfer assets into the trust (note that you may need to establish a limited liability company (LLC) before moving over any assets)
- Take tax implications into account before making any final decisions
You can fund your ATP with assets including cash, securities, limited liability companies (LLC), intellectual property, real estate, boats, and planes.
Looking to safeguard your assets? Avidian Wealth Solutions is here for you.
Now that you understand the complexities that go into how to set up an asset protection trust, you may be wondering who can help you with asset management in Houston, TX.
If you are looking for a fiduciary wealth management firm that can help you create a customized financial plan including asset allocation, look no further than Avidian Wealth Solutions. We offer financial solutions including risk management, investment strategy, and estate planning. Our team will also work with your current team of attorneys to help you determine what types of asset protection vehicles work best for you.
Interested in learning more about what we do? Request a meeting today!
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