An asset protection trust is a financial or trust product created
for various reasons; it’s meant to hold your assets and protect them from
creditors, judgments against your estate, and lawsuits. When you have multiple
properties to leave to many heirs, this is one financial facet you should
consider. It gives you an umbrella of protection against possible court
litigations before it even begins. If there's already an ongoing court case, an
asset protection trust could also influence the settlement to fall in favor of
the persons on your side.
That said, this article gives you everything you need to know about asset protection trusts and why you should consider setting one up.
The Nature Of An Asset Protection Trust
Asset protection trusts are classified as a self-settled
trust, whereby the grantor of the trust is designated as a beneficiary. This
grantor receives allowed access to the funds in the trust account during a designated
specific time. When created properly with the help of an
attorney, the asset protection trust disables creditors to reach these
assets.
There are regulatory requirements to follow for its effectiveness.
Some of these are:
·
It's
irrevocable.
·
It
can provide for occasional distributions, but these are only at the trustee's
discretion.
· It contains a spendthrift clause, where the beneficiary can't sell, spend or give away trust assets without the rightful stipulations.
The Benefits Of An Asset Protection Trust
There are many important reasons why getting an asset
protection trust
is crucial. Here are some of them:
· Avoid Probate
One of the key reasons to establish an asset protection
trust is to avoid probate. This saves you and your heirs the hassle of going
through litigation and shouldering the costs associated with these procedures.
It saves you time, paperwork, and legal fees.
If you have a will included in your asset protection
documents, probate will include the process wherein a judge will determine the
will's validity. The process could further delay your heirs’ claims.
· Protection Against Internal And
External Claims
Creditors can have potential claims against your assets.
These claims can be classified either as internal or external. Internal claims
from creditors are those wherein their remedy is confined only to your
business's limited assets. Meanwhile, external claims aren't just limited to
your business's assets, but it can also extend to your personal assets.
The best part of asset protection is its application to
external claims. When you have a business, you don't want your assets to suffer
the liabilities, such as when an accident occurs involving your company car and
employee, for example, which will be held liable by a third party, especially
when your driver-employee was caught driving
under the influence. That way, you don't lose everything you worked
hard for. In the future, your heirs can still receive your assets because the
creditors weren't able to confiscate them through that accident scenario.
· Protection Against Nursing Home
Costs
At present, perhaps you might think that it's too early to
think about being sent to a nursing home. But, it's never too early to prepare
for this likelihood. Nursing homes are expensive, and you'll want to be ready
to pay for it. Otherwise, the burden might fall on the hands of your family
members. When you can't pay for this expense, some of your assets can also be
charged with covering your nursing home costs.
An asset protection trust also shields your assets from these
nursing home costs. This works through the Medicaid protection trust, whereby
the assets funded with these trusts aren't used to determine your qualification
for long-term Medicaid. This also protects your assets against recovery by the
Medicaid program.
· Difficulty Of Contesting
An asset protection trust gives you more protection than an
ordinary will does, simply because the former is very difficult to contest.
This means no legal action can be brought by anyone who’s unhappy with your
assets' distribution.
There are typically two ways to contest a trust and these
include:
-
You
(the grantor) were already incapacitated at the time the trust was made
- You were coerced under force or duress to set up a trust
Conclusion
Previously, it has been thought that asset protection trusts are reserved only for the wealthy. At present, this notion is already false. Even if you're not a millionaire, the reasons enumerated above should be convincing enough for you to consider setting up a trust. An asset protection trust can help you better manage your property even after your death. That way, your assets are protected from litigations, costly proceedings, and creditors. More importantly, you're guaranteed that these are distributed according to your wishes. Thus, your family receives what they rightfully deserve.