Asset Protection Trusts
Asset Protection Trusts are Powerful Tools for Shielding Your Assets from Potential Liabilities
When it comes to shielding your assets from creditors, one of the most powerful tools available to you is the asset protection trust. Placing assets into a properly formed and managed trust creates a layer of separation that provides protection in the event of a claim or judgment against you.
While forming an asset protection trust can be a fairly straightforward process, various complexities can arise—and mistakes can prove incredibly costly. You also need to decide which type of asset protection trust to form based on your individual risks and needs. As a result, it is important to work with an experienced asset protection lawyer who can not only provide sound recommendations, but who can also do everything that is necessary to secure your assets in the United States or abroad.
Understanding the Types of Asset Protection Trusts
Broadly, asset protection trusts fall into two categories: domestic and offshore. However, within each of these broad categories, there are several specific options, and choosing the option that makes the most sense for your circumstances requires a careful and comprehensive analysis. Our lawyers can help you decide whether a domestic or foreign asset protection trust makes the most sense, and then we can walk you through the process of choosing the specific type of trust that is best suited to your needs.
1. Domestic Asset Protection Trusts
A domestic asset protection trust is formed under state law. Forming a domestic asset protection trust is generally cheaper than forming a foreign asset protection trust; and, while some individuals will need the added protection that a foreign trust provides, domestic asset protection trusts are well-suited to many high-net-worth individuals’ needs.
Although all 50 states have trust laws that allow for the creation of domestic trusts for asset protection purposes, certain states’ laws are particularly favorable. These include, among others:
- New Hampshire
- Rhode Island
- South Dakota
When you form a domestic asset protection trust, you will place the assets you want to protect into the trust. They will then become the trust’s property, and you will be designated as both the grantor and the beneficiary of the trust. While domestic asset protection trusts are generally labeled as “irrevocable,” there are still a variety of options for pulling assets out of a domestic asset protection trust should you choose to do so. However, this is not necessary as often as many people think, as it is possible to use, manage, and sell assets directly through a domestic asset protection trust.
2. Foreign Asset Protection Trusts
Foreign asset protection trusts are formed under the laws of a country other than the United States. Several countries have adopted laws that are particularly favorable to foreign citizens who are seeking to shield their assets from creditor claims in their home countries. These include Belize, the Cayman Islands, the Cook Islands, Nevis, and Luxembourg, among several others.
Generally, foreign asset protection trusts are more complex (and thus more costly) to form; however, they also offer greater protection than domestic asset protection trusts in many cases. As a result, deciding whether to form a domestic or foreign trust is a matter of assessing your specific needs. At Oberheiden P.C., we can help you determine the level of protection you need, and then we can help you choose the specific trust structure that makes the most sense for your family, financial, and legal circumstances.
While there are a variety of types of asset protection trusts, a key characteristic of any asset protection trust is its “spendthrift” nature. With a spendthrift trust, “the beneficiary is unable to sell or give away her equitable interest in the trust property . . . and her creditors cannot reach those assets.” This means that once an asset protection trust is in place, the assets held by the trust are secure—as long as creditors cannot allege a fraudulent conveyance or other grounds to unwind any transactions placing assets into the trust.
Forming an Asset Protection Trust
The process of forming an asset protection trust can be broken down into three major steps. In broad strokes, the steps to form an asset protection trust are:
- Choose the Best Type of Asset Protection Trust for Your Circumstances – As discussed above, the first step is to choose the type of asset protection trust that is most well-suited to your specific needs. Your lawyer at Oberheiden P.C. will guide you through this process, taking into account your assets, your risks, and all other pertinent considerations.
- Prepare the Documentation Needed to Establish the Trust in Your Chosen Jurisdiction – Once you choose a specific type of asset protection trust, your lawyer will prepare the documentation needed to establish the trust in your chosen jurisdiction. Each state in the U.S. has its own formalities, and each country that offers foreign asset protection trusts has its own specific documentation requirements.
- Fund the Trust with the Assets You Want to Protect – The third and final step involved in forming an asset protection trust is funding the trust with the assets you want to protect. Depending on the nature of the assets you wish to place into the trust, this may entail various forms of documentation as well (i.e., changing the deed to real estate or assigning your ownership interest in a limited liability company (LLC)). At this point, your trust will be fully formed, and the assets placed into the trust will be protected against future liabilities.
Once you form an asset protection trust, you will need to manage the trust on an ongoing basis. You will need to maintain adequate legal separation between yourself and the trust, and you will need to place future-acquired assets into the trust in order to protect them. Your lawyer at Oberheiden P.C. can assist with all of these steps, and can manage your trust on your behalf while providing the advice you need to continue minimizing your liability exposure.
Incorporating a Domestic or Foreign Trust Into a Broader Asset Protection Strategy
For many high-net-worth individuals and couples, forming a domestic or foreign asset protection trust is just one step toward implementing a broader asset protection strategy. Forming a limited liability company (LLC), obtaining liability insurance coverage, and deploying various risk mitigation tactics can all help with keeping individuals’ and couples’ assets secure. At Oberheiden P.C., we provide comprehensive asset protection services, and we can help you implement a comprehensive strategy that is custom-tailored to your individual circumstances.
FAQs: Using Domestic and Foreign Asset Protection Trusts in the U.S.
Who should consider forming an asset protection trust?
Anyone who has substantial assets should consider forming an asset protection trust. This includes business executives, licensed professionals (i.e., doctors and accountants), investors, and other high-net-worth individuals. When formed and managed properly, these trusts provide substantial protection whether established under U.S. state law or the laws of a foreign country.
Which is better for asset protection, a trust or an LLC?
Asset protection trusts and limited liability companies (LLCs) offer different benefits under different circumstances. As a result, it is difficult to say that one is better than the other. Additionally, in many cases, it will make sense to form both a trust and an LLC to achieve the benefits that both of these options offer.
Should I form a domestic or foreign asset protection trust if I live in the U.S.?
Deciding whether to form a domestic or foreign asset protection trust requires careful consideration of several factors. At Oberheiden P.C., we can help you weigh your options and make an informed decision about how to protect your hard-earned wealth.
Will I still have access to my property if I form an asset protection trust?
Yes, you will still have access to your property if you form an asset protection trust. As the beneficiary of the trust, the trust exists for your benefit. While there are certain restrictions and formalities you must observe in order to preserve the protections that your trust offers, forming an asset protection trust puts your assets out of creditors’ reach, but not out of yours.
When is it too late to form an asset protection trust?
If you are already facing a judgment, it may be too late to form an asset protection trust to avoid liability for the judgment. However, even in this scenario, it will likely make sense to form an asset protection trust to protect yourself in the future. Our lawyers can explain the options you have available, and then we can help you make informed decisions about how to move forward.
Learn More About Forming an Asset Protection Trust with Oberheiden P.C.
If you would like to know more about forming an asset protection trust, we invite you to contact us for a complimentary initial consultation. To discuss your options with a senior asset protection lawyer at Oberheiden P.C. in confidence, please call 888-680-1745 or tell us how we can reach you online today.