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The Third Pillar of Asset Protection

The Third Pillar of Asset Protection

The Third Pillar of Asset Protection is this: For assets to be protected, you have to be able to change your mind if circumstances change. A key component of most asset protection plans is an irrevocable trust. An irrevocable trust is an arrangement that transfers ownership of property to a third party for the benefit of others. This type of trust has certain advantages, such as protecting assets from creditors and avoiding probate court fees. But it can also have drawbacks, as the grantor typically cannot modify it after establishing it. Learn more about what an irrevocable trust is and when you can change them. Also learn the benefits and risks associated with them.

Understand the Purpose of an Irrevocable Trust

Before making any changes to an irrevocable trust, it is important to understand the purpose of this type of trust. This type of trust can protect assets from estate tax liability and also limit or eliminate creditors’ claims against the assets in the trust. The grantor of an irrevocable trust typically cannot amend it. But under certain circumstances it may be possible for the grantor (or a designated third party) to make modifications. It’s important to understand the risks associated with an irrevocable trust before changing it.

Understand When to Implement The Third Pillar of Asset Protection

There are very specific reasons for which someone can change the typical irrevocable trust. For instance, if the grantor, who is typically the person who has set up the trust, would like to change how the assets get distributed upon death or add a new beneficiary, they may be able to amend the trust agreement. In addition, changes might also be possible in order to meet changing IRS regulations or to protect beneficiaries’ interests.

In contrast, our Asset Vault Trust includes a Trust Protector with broad powers to amend or even terminate the trust. You (as the grantor) can name the Trust Protector you want. So, essentially you are the one amending or terminating the trust. You just can’t do it personally; you need to do it through a third party.

You Can Be General Partner Of Your Limited Partnership

By being in control of your Asset Management Limited Partnership, you can control all of the investments and other assets inside that entity. Thus, this complies with the Third Pillar of Asset Protection because you have complete control over your assets.

You Can Be Manager Of LLCs

You should put your “risky assets” like rental properties, boats, businesses, and airplanes inside their own LLCs. You can be the manager of those LLCs even though they are owned by your Asset Management Limited Partnership. Thus, this also complies with the Third Pillar of Asset Protection.

Know What Not to Do When Seeking to Amend an Irrevocable Trust

There are certain actions or steps that you typically may not take in order amend an irrevocable trust. For instance, the original grantor typically cannot terminate the trust without permission from the court or all of the beneficiaries, nor can they modify or revoke provisions of the trust without permission from all of the beneficiaries.

However, the grantor of an Asset Vault Trust has two powerful abilities to amend the trust (even though it is “irrevocable”). First, it has a Special Power of Appointment. That gives the grantor the power to give the trust assets to a select group of individuals. The objects of the power in a special power of appointment cannot be the grantor, his or her estate, or his or her creditors.

So, you might be thinking, “What what the heck use is that? I can’t transfer the assets back to myself?” Well, that’s true. But you can transfer your assets to any of the other 7 billion people in the world, including your spouse, child, close friend, or parent. So, yes, it is not a perfect solution. That’s why there is yet another way of amending or unwinding the trust.

You can also have your Trust Protector amend the trust or even unwind it. We’ve had a recent experience that demonstrates you should take some precautions when doing this. For example, it would best if you get the beneficiaries of your Asset Vault Trust or irrevocable trust to sign off on the amendment.

Understand State and Federal Tax Implications

Anyone making a change to the irrevocable trust must always be aware of the state and federal tax implications that may arise from the amendments. Examples of changes which could affect taxes include terminating interest or adding new beneficiaries. It is important to consult with a financial advisor or an attorney to understand any potential tax effects before amending the trust, as it could impact you taxes even after termination.

Want A Bulletproof Asset Protection Plan That Complies With the Third Pillar of Asset Protection?

We have extensive experience in asset protection. None of our asset protection plans have ever failed. We use methods that have withstood the test of time. Our clients something that works (rather than something that sounds great but collapses when attacked in court). Give us call at 602-443-4888 to see how we can help you.


Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.