How Asset Protection Trusts Work And Who Can Use Them
An asset protection trust is a legal structure set up to protect your wealth. It allows for funds to be held for your beneficiaries on a discretionary basis until such time as they are permitted to use it. Almost any asset can be listed in asset protection trusts. This includes property, cash and securities.
There are three parties involved with the creation of a trust. The first is the settlor, who is the person or group that wants to set up the structure on behalf of another person. The second party is the beneficiary, who is the individual or group of persons entitled to the property or money. The third party is the trustee, who is the person responsible for managing the property or money on behalf of the beneficiary, usually until the beneficiary comes of age. The trustee looks out for the interests of the beneficiary.
The purpose of these vehicles is to split the enjoyment of the trust assets from its legal ownership, which originates from the settlor. The beneficiaries continue to have an equitable interest in the estate; however, they cannot hold the legal title until they come of age. The legal effect of this is to insulate the money or property from any claims that may be brought by creditors without concealing its intent or trying to evade taxes.
The ability of a creditor to obtain a judgment against the beneficiary is limited to their interests held in the agreement. Because the interests of the beneficiary are protected, this precludes the creditors from obtaining any property or money that has been set up for the beneficiary, even if the beneficiary has been declared bankrupt or has outstanding debts.
Many of these structures established by a settlor in the United States are considered to be a grantor trust under income tax laws. This means that any income that is generated or accumulated must be reported to the Internal Revenue Service as part of the income tax return of the settlor. These structures, while protecting money and property from possession by a creditor, do not offer any considerable tax advantages otherwise.
In such cases, the settlor is wise to seek legal counsel from a competent estates attorney, who can advise them of their options. However, it should be noted that failure to comply with such court orders may be viewed as contempt of court, which can lead to imprisonment for other penal fines. This is why it is important to have a clear separation between the settlor and those who have control over the assets, in a properly established trust.
Other requirements that are imposed by law is that the estate structure must have at least one appointed resident trustee and some of the administration functions must be conducted in the state in which it was set up. Normally, a settlor cannot also be a trustee.
Before you set up asset protection trusts, make sure you sit down with a good lawyer and discuss your intentions thoroughly. In your discussions, make sure you outline exactly who the beneficiaries are and what assets, such as property or money, are to covered.
There are three parties involved with the creation of a trust. The first is the settlor, who is the person or group that wants to set up the structure on behalf of another person. The second party is the beneficiary, who is the individual or group of persons entitled to the property or money. The third party is the trustee, who is the person responsible for managing the property or money on behalf of the beneficiary, usually until the beneficiary comes of age. The trustee looks out for the interests of the beneficiary.
The purpose of these vehicles is to split the enjoyment of the trust assets from its legal ownership, which originates from the settlor. The beneficiaries continue to have an equitable interest in the estate; however, they cannot hold the legal title until they come of age. The legal effect of this is to insulate the money or property from any claims that may be brought by creditors without concealing its intent or trying to evade taxes.
The ability of a creditor to obtain a judgment against the beneficiary is limited to their interests held in the agreement. Because the interests of the beneficiary are protected, this precludes the creditors from obtaining any property or money that has been set up for the beneficiary, even if the beneficiary has been declared bankrupt or has outstanding debts.
Many of these structures established by a settlor in the United States are considered to be a grantor trust under income tax laws. This means that any income that is generated or accumulated must be reported to the Internal Revenue Service as part of the income tax return of the settlor. These structures, while protecting money and property from possession by a creditor, do not offer any considerable tax advantages otherwise.
In such cases, the settlor is wise to seek legal counsel from a competent estates attorney, who can advise them of their options. However, it should be noted that failure to comply with such court orders may be viewed as contempt of court, which can lead to imprisonment for other penal fines. This is why it is important to have a clear separation between the settlor and those who have control over the assets, in a properly established trust.
Other requirements that are imposed by law is that the estate structure must have at least one appointed resident trustee and some of the administration functions must be conducted in the state in which it was set up. Normally, a settlor cannot also be a trustee.
Before you set up asset protection trusts, make sure you sit down with a good lawyer and discuss your intentions thoroughly. In your discussions, make sure you outline exactly who the beneficiaries are and what assets, such as property or money, are to covered.
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