Practical Uses of an Asset Protection Trust

A trust is an entity created to hold assets for the benefit of a person or multiple people. There are many different kinds of trusts, and asset protection trusts are just one example. Asset protection trusts allow solvent individuals to place a portion of their wealth in legitimate vehicles that are protected from unanticipated creditors.

Parties Involved in an Asset Protection Trust

Settlor – The settlor is the creator of the trust or the one for whom the trust is created. Trust settlors generally add assets to the trust, though others may as well. The declaration of trust establishes the trust and names the trustees.

Trustees – Trustees oversee and manage the trust.

Beneficiaries – The trust beneficiaries generally include the settlors’ family, but may also include one or more charitable organizations.

Protectors – In many foreign asset protection trusts, there is a protector who has the ability to remove or replace trustees and reject or modify investment advice of the trustees.

Practical Uses of an Asset Protection Trust

For an asset protection trust to work, the settlement of the trust must be completed before claimants, litigants, and liabilities arise.

Supplement Insurance

The number of lawsuits in the United States is rising as new theories of liability seem to be created every day. Some professionals use asset protection trusts as a supplement to their insurance coverage. Heavy insurance coverage tends to attract litigation, so many professionals reduce the potential size of any claimant’s recovery with asset protection trusts.

Discourage Litigation

When plaintiffs and attorneys discover that a settled and implemented asset protection trust exists, their motivation to proceed with litigation is reduced because the judgment will be difficult or impossible to collect.

Protect from Potential Exchange Controls

If the government implements exchange controls and suspends the ability to take assets abroad, individuals with foreign asset protection trusts will be able to avoid these restrictions. Limits on foreign investment have been made in the past in other countries. The current debt situation in the US makes it a plausible possibility.

Divorce & Pre-Nuptial Agreements

Unmarried individuals may usually settle offshore trusts without consent of their prospective spouse. During a divorce, an offshore trust will usually protect transferred assets. Asset protection trusts are also used as an estate-planning tool for pre-divorce planning.

Washington, D.C. Asset Protection Planning, Estate Planning & Tax Preparation

Cohen & Burnett offers estate planning, asset protection planning, retirement planning, and tax preparation in and around Washington, D.C. Our legal professionals have established strong working relationships with clients for the past 25 years. For more information about our services, please visit our homepage today.

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