One of the most prudent things you can do financially is to create asset protection trusts. This strategy is valuable for everyone, especially for business owners, since it shields your wealth from falling into the hands of creditors or the court.
An asset protection trust is described as a self-settled trust wherein the grantor can be named as a beneficiary. With this, you’re allowed access to the funds in the account, while ensuring that it won’t be claimed by creditors or those who maliciously file lawsuits against your business.
However, there are a lot of asset protection trusts to consider, plus new tools have been developed as well, such as bridge trust. With this in mind, it’s better to consult with an expert to help you find the right strategies for your financial goals and needs.
It pays to familiarize yourself with the different types of asset protection trusts, such as the following:
The two primary categories of trusts are revocable and irrevocable. However, only one of them is ideal for asset protection.
The former offers more flexibility since the settlor can change the provisions, stipulations, and beneficiaries anytime. It also allows them to revoke the trust with ease.
Unfortunately, a revocable trust doesn’t guarantee creditor protection. A benefit that it does offer, however, is that you get to avoid probate, which is the validation and valuation process of your assets. With this, there won’t be any need to go through legal procedures, and the assets can be passed directly to your beneficiaries.
On the other hand, an irrevocable trust is a legal and binding document. You can’t change the details in the file directly once all parties have signed the agreement. The security that this arrangement provides makes it the best form of asset protection.
2. Domestic And Foreign
Both domestic and foreign asset protection trusts have their own advantages and disadvantages. One of their key differences is the price. The latter is more expensive than the former, but it does offer more defenses against creditors or lawsuits.
Domestic trusts are crafted to maximize the legal ins and outs of the country that you’re living in. You do have to be mindful of where your trust is crafted. There can be problems when it’s set up in a different state than where you’re located since creditors can easily find loopholes for this process.
Foreign trusts offer more asset protection because the local or federal court’s jurisdiction can’t reach some of the other countries. This is the ultimate defense against creditors and malicious lawsuit claimants.
This type of asset protection is valuable for business owners who are in a position where they could lose everything in a snap of a finger. For instance, someone frames your company for neglecting safety in the workplace. They, then, file a lawsuit and attempt to bleed you dry by coming after all your money.
If you set up an offshore asset protection trust, they will have a difficult time asking for the wealth that you stored in another country. The US government doesn’t have jurisdiction in other nations, so the plaintiff will need to file another case in the locality where your trust is placed. It would take too much time, effort, and money on the claimant’s end, which makes the endeavor impractical. Fortunately, it would save you from being bankrupt.
3. Family Protection
This type of asset protection trust is an irrevocable one that’s arranged by parents naming their children as beneficiaries. It serves to hold the inheritance instead of having the assets distributed immediately once the settlors pass away.
These funds are protected from bankruptcy, divorce, and creditor claims. Moreover, the child’s estate would also avoid double taxation since the money from the trust still isn’t technically theirs.
4. Medicaid Asset Protection
A Medicaid asset protection trust (MAPT) is useful for individuals who want to maintain or pass eligibility status for the program. Applicants for this US government medical insurance must only have a limited amount of assets to their names. The MAPT can help them protect excess wealth. With this, they can enjoy the benefits of the program and receive the care they deserve in the comfort of their homes.
Asset protection is a wise strategy for safeguarding your wealth from creditors or malicious lawsuit claimants. You must be familiar with the different options available to you so that you can choose the ones that will help you accomplish your financial goals and suit your needs.
Your asset protection trust must be irrevocable since this type offers more security. It’s also better to save some of your assets offshore, where the court’s jurisdiction is zero or limited. Then, you also have other options, such as family asset protection and MAPT.