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Protecting your holdings and assets can be incredibly important in planning for the future and preventing any unexpected losses. An asset protection trust can be used for particular advantages like avoiding creditors while still allowing the owner access to those funds. Unlike other trusts that are more designed for establishing a trust to be passed on to loved ones or friends, this trust is specifically for the owner. Here’s how to understand asset protection trusts and how taxes play a role in them.
Understanding Asset Protection Trusts
In this form of trust, the grantor, or creator, of the trust also becomes the beneficiary (as opposed to someone else when they pass away). The owner can access all of their funds while it is under protection. However, there are strict rules and regulations surrounding these kinds of trusts. For example, the grantor cannot sell or remove trust assets without going through complicated steps. Distributions from the trust can only occur occasionally, if at all, and must abide by the rules.
Advantages to Asset Protection Trusts
The main point of these trusts is that they protect a person’s assets from creditors. Access to them may be limited by the grantor, but at least others also can’t get their hands on assets. Normally, people with a lot of wealth are most likely to use asset protection trusts. These trusts may be exempt from certain taxes like state income taxes, depending on the state the grantor lives in.
Two Types of Trusts
There are two main types of asset protection trusts. The first is domestic, which is provided within the United States. It is considered more flexible and can be easy to set up in certain states. However, it is also fairly new, and not exempt to legal judgments.
The second is foreign, where assets are literally held outside of the United States in an offshore account. Assets in foreign accounts sometimes have more privacy and security. However, they are usually more expensive to set up and manage.
Hiring a Lawyer for Your Asset Protection Trust
Asset protection trusts are more complicated than other types of trusts, especially if they are offshore. Since you’ll likely be putting a large number of assets aside, it’s best to have the trust set up properly to avoid pitfalls down the road. A lawyer who is experienced with these trusts can help manage yours so that it abides by all legal terms and maintains the most protection. You can always go to a consultation with an estate planning lawyer in Chandler, AZ to see if it is the right choice for your assets.
Thanks to Citadel Law Firm for their insight into estate planning and asset protection trusts.