The median net worth of the average American family is $121,700. Protecting these assets ensures they’re still available for children, grandchildren, and other beneficiaries. Trusts are one of the most common estate planning documents, and there are several types. An asset protection trust is specifically designed to protect your assets from creditors, lawsuits, and other actions that may make them unavailable for your beneficiaries after your death.
This type of trust is a complex estate planning document that can be difficult to understand and create. Read our guide to learn the answers to 5 of your most burning questions, including what is an asset protection trust, how do I create one, and what benefits can it provide?
Table of Contents
1. What is An Asset Protection Trust?
An asset protection trust, also known as an APT, holds and protects your assets after your death. Once everything is transferred, it shields them from creditors, lawsuits, and other judgments against your estate. There are 2 types; domestic and foreign or offshore asset protection trusts.
A domestic APT protects assets in the United States. It’s more affordable but leaves you and your beneficiaries at risk of losing your assets to liens, judgments, bankruptcy, or state laws.
A foreign or offshore ATP holds assets in an offshore account outside of the U.S. It’s more expensive but offers additional protection for and lower taxes on your assets.
2. What are the Pros and Cons?
Estate planning of New Jersey is the process of determining the right methods of distributing and protecting your assets. Comparing all your options will help you make the right choice. Don’t put yourself through the process of creating an asset protection trust before you’ve determined if it’s the right option for you. There are several pros and cons of the document you need to know.
An asset protection trust protects your assets from creditor lawsuits. It ensures that your estate will always be available for your beneficiaries and can’t be taken away from them. This is its main purpose and primary benefit. The trust can also help you remove assets from an estate. This may seem counterproductive, but it can make it easier for you to apply for Medicaid.
An APT also offers tax benefits. It can reduce or eliminate your state income taxes. It can also remove assets from your estate so that beneficiaries don’t have to pay taxes on them but can still benefit from them.
Creating an asset protection trust is a complex process. You’ll need a skilled estate planning attorney of New Jersey and several other professionals to help you. An APT is an irrevocable trust. It creates a permanent transfer of assets, preventing you from changing your mind and creating a new agreement later.
The trust also doesn’t offer complete control to your beneficiaries. Provisions like the spendthrift and discretionary clauses limit the access and control they have over the assets.
Asset protection trusts are best for wealthy individuals with high-risk occupations like doctors and real estate developers. It’s also a useful alternative to a prenuptial agreement. If you have a small estate and aren’t at risk for creditor action, you may want to consider another estate planning option.
3. Which States Allow Them?
The answer to a question like “how does an asset protection trust work” depends on where you live. They’re not legal everywhere and regulations differ.
17 states currently allow for the creation of asset protection trusts, including:
- New Hampshire
- Rhode Island
- South Dakota
More states may allow for this type of trust as it becomes more popular. Check your local regulations and work with a lawyer who understands them before setting one up.
4. How do I Set One Up?
An asset protection trust contains all your assets and determines where they go after your death. You’ll need to set it up in advance by following a predetermined process. Start by consulting an asset protection trust attorney. They’ll help you understand important aspects like federal and state laws and tax rules.
Once you’ve found your attorney, you’ll have to create an assets trust agreement. This will involve naming a trustee and successor trustee(s) and one or more beneficiaries, choosing which assets to transfer, and creating a draft.
The next step is to fund the agreement by transferring assets to it. You can use:
- Business or recreational assets
- Real estate
Transferring your assets is the most important part of the process, and you shouldn’t complete it on your own. You’ll need a team of financial planners, lawyers, and insurance brokers. They’ll evaluate each asset based on legal protection, taxation, business and growth potential, and other factors.
Creating an asset protection trust is one of the best ways to protect your estate from creditors, but it can be a long and expensive process. Depending on the complexity, it could cost you $5,000-$20,000 to set up.
5. Where Can I Find the Right Lawyers?
Finding the right team is the best way to ensure that your asset protection trust is complete, legal, and meets your needs and desires. You should look around and compare your options to find the best experienced professionals to help you.
Your asset protection attorney is one of the most crucial members of your team. They understand estate planning laws and will help you create a proper trust agreement. Smith Baird is a reputable law office that specializes in estate planning. Get more information on their services to learn what they can do for you.
Where Can I Learn More?
There are several types of legal agreements that may be part of your estate planning strategy. An asset protection trust is one of the best for high-risk individuals with large estates. Creating this legal agreement involves transferring all of your assets while complying with federal and local laws. You’ll need a team of professionals, including an asset protection attorney.
If you’re just beginning your estate planning journey, you’ll have more questions than just “what is an asset protection trust?” Read the rest of our content for more of the information you’ve been searching for.
You may also like: What Qualifications Do I Need To Be A Close Protection Officer?