In today’s litigious society, effective asset protection is a must if you do not want your hard-earned assets to be taken from you in litigation. One of the most comprehensive asset protection strategies involves establishing a trust for the assets to shield them from litigation or creditors. Of course, these vehicles need to be set up before the litigation in order to be effective. Assuming they are, they can make it nearly impossible for creditors and judgement holders to reach your assets. Here are some of the types of trusts that can be established as asset protection strategies. 

Foreign Asset Protection Trust 

In order to avail yourself of this option, you would establish a trust in an overseas country. There are certain jurisdictions such as the Cook Islands and Nevis that have passed laws to make their countries friendly to these types of instruments. The assets would then be moved into the trust and a trustee would be appointed. Once this trust is established, United States law does not apply to these assets. Some of these laws give an enhanced degree of privacy to these trusts that can keep information about them from the public realm.  The laws of these jurisdictions will operate to keep these assets from being seized. While you may not any decisions that would imply that you control the assets, you would still derive the benefit from owning these assets. United States citizens have moved billions of dollars into foreign offshore asset protection trusts. There are some other considerations to take into account. While these instruments will be highly effective in protecting assets, they may also be expensive to establish. Further, a judge may attempt to compel you to return the assets to the United States under the threat of contempt of court. There are also some IRS reporting requirements associated with this account that may require time and money to complete.

Domestic Asset Protection Trust

Not to be outdone, many states have seen their citizens move assets out of the country into foreign trusts and have looked at it as a loss of potential revenue. These states have passed their own laws to allow for domestic asset protection trusts. Currently, there are 17 states that permit these types of trusts.  Domestic asset protection trusts allow the grantor to be the beneficiary from the assets during their lifetime while the assets are shielded from creditors and will be exempt from the estate tax up to a certain amount. You can move various assets into the trust once it has been created, but any assets that are placed into the trust must stay there as the trust is irrevocable.  You can even move an entire limited liability company into the trust, which is important for those looking to protect their business. There is an open question whether a resident of state that does not allow for domestic asset protection trusts can establish one in a state that does. The asset protection in these trusts is not absolute as it only takes effect after a statute of limitations has passed.  This is in contrast to foreign asset protection trusts that will largely be unreachable the instant that the asset is moved into the trust. However, a domestic trust will likely be easier and less expensive to create. 

Bridge Trust

This is another type of trust that removes some of the permanence of other types of trusts. Generally, a trust must be irrevocable in order to provide the highest degree of asset protection. However, a bridge trust can be in effect for a certain period of time so long as the beneficiary is facing some sort of a threat from a creditor or another legal threat. The benefit of a bridge trust is that your assets may never have to leave the United States. So long as there is no threat to your assets, you will maintain control of them and the bridge trust will just simply exist. The bridge trust is intended to activate and hold your assets once there is an issue that can threaten you. When the threat passes, the assets will then return back to the United States, where you can control them again.  You do not have to worry about appointing a trustee since they will already be vetted and in place the second the trust is activated. This trust has all of the benefits of a foreign asset protection trust along with the fact that it is similar to a revocable trust and does not have any onerous IRS reporting requirements. This structure is intended to help you realize all of the benefits of foreign asset protection trusts while providing you with maximum flexibility.

Irrevocable Third Party Trust

Establishing this type of trusts and moving assets into them will conclusively end your ownership of them such that they cannot be reached. An irrevocable third party trust is created by the grantor and then assets and property is placed into them for a different beneficiary. In other words, the grantor is not the beneficiary and assets cannot be distributed for the benefit of the grantor. Once this trust is created, as its name implies, it is permanent and the assets cannot be taken back. This means that you must be entirely certain of your wishes and intentions when you create this because it cannot be undone. However, once you establish this trust, the protection provided is absolute so long as it has been created and the assets moved into it before there is a legal threat or a creditor. 

There are numerous different trust options for those who are seeking to protect their assets. Working in tandem with an asset protection attorney, you can find a solution that works best for and will give you the highest degree of protection while considering your financial situation. You can have the peace of mind and assurances that go along with asset protection. Of course, there are other solutions in addition to trusts.

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