Asset Protection Trusts (APTs) are legal, but may not be effective. They offer the promise of protecting assets from creditors, claims, and lawsuits, and keep them secure for generations to come. But what are the risks? This article will explore the basics of APTs, as well as their advantages and disadvantages.
What Is an Asset Protection Trust?
An Asset Protection Trust (APT) is a special trust that is created and funded with your assets. APTs are intended to keep your money and property safe from creditors and claimants. In other words, your assets remain untouched, even in the event of claims or judgments against you. The promise is that you can place your assets into the trust while you remain in control and can still benefit from them.
How Does an Asset Protection Trust Work?
You can set up an Asset Protection Trust to create a separate legal entity for your assets. The trust shelters your assets from creditors and claimants. An independent trustee manages the trust and is responsible for making decisions about how to invest and distribute the trust’s assets. The fact that you do not own the assets makes it more difficult for creditors to access them. The idea is that as long as your assets are in the trust, they cannot be touched, even if you face legal judgments or bankruptcy proceedings. (However, there are lots of court cases that have successfully attacked these trusts. So, they are not as effective as their marketing would suggest.)
Are Asset Protection Trusts Legal?
Asset Protection Trusts are legal insofar as you won’t go to jail for creating one. However, they may not be effective. We have a blog post explaining this in more depth.
In general, they provide some protection if you live in one of the minority of states that permit APTs. But even then, the risk is that you might be sued in one of the other states that do not permit them. It’s important to check the laws in your state before setting up a trust as they could affect what type of assets you can place in it.
Benefits of an Asset Protection Trust
Asset Protection Trusts provide myriad benefits depending on the jurisdiction in which they are established. In addition to possibly protecting a person’s assets from creditors, they may help to ensure that assets are passed down to the intended beneficiaries in accordance with one’s wishes upon death.
Potential Risks to Consider When Using An Asset Protection Trust
There are a few risks that should be taken into consideration when using an Asset Protection Trust. It is important to note that there can be negative consequences, such as taxes, if the trust is not properly structured. Additionally, it is possible for creditors to challenge the legality of transferring assets into the trust. That could lead to unwanted legal battles. Finally, some types of these trusts (especially foreign APTs) requires expensive professional assistance. You should consider all these factors before making any decisions about an asset protection trust.
Want to Know If An Asset Protection Trust Is Legal In Your Particular Situation?
Our Asset Protection Attorneys have decades of experience with asset protection planning. What we do is safe and effective. We do not use trusts like APTs because there are too many cases demonstrating that they simply don’t work. And we shy away from techniques that tend to attract legal trouble. Instead, we use techniques that have been battle-tested for generations. For example, we have found that our Asset Vault Trust is much better. It’s supported by over 140 years of case law, and is extremely flexible.
If you’re looking for bulletproof protection, give us a call at 602-443-4888.