Tuesday, May 6, 2014

What Are Asset Protection Trusts?

By Tracie Knight

Trusts are ideal if you want to gain control over the management of your assets when you die, or if you wish to manage your own assets in a particular fashion. Asset protection trusts are suitable if you want to protect your personal and professional assets from potential creditors. This is an effective method of planning your wealth goals.

A trust is considered to be a legal entity that holds an asset which will benefit another. Trusts are made up of three parties. The trustor is the person who funds and creates the trust. The beneficiary is the person who will benefit from the trust. The trustee is the person who administers the trust and is bound by a duty to act in the beneficiary's best interest.

A trust is created by the execution of a legal document known as a trust agreement. This agreement names the beneficiary and the trustee. It also contains instructions related to what the beneficiary will receive. It lists the trustee's duties and when the trust will end, among other considerations.

This entity can contain any asset, such as stocks, bonds, real estate. What you choose to put into the entity will be dependent on your goals for starting the deed. An example is if you want to form an entity that will be used for the payment of estate duties and taxes, or to provide financially for your family upon your death, you may choose to fund the trust with an insurance policy or real estate.

There are many reasons why people make use of these entities. Some of the reasons for this are to minimize estate taxes, protect assets from possible creditors and to preserve assets. You may want to move assets to individuals who fall into a lower income tax bracket. If you want to ensure that your assets remain in your hands, you may consider an asset protection entity.

This is an irrevocable trust that will protect all your assets within it from potential creditors. To establish the entity, you are allowed to transfer certain assets to it. Once the assets have been transferred, it will be protected from future creditors.

You will retain a level of control over all the assets you place in the entity. As the grantor, you are allowed by law to direct the way in which all assets are invested. You are able to gain income from it and can determine the distribution to third parties.

In order to offer protection to your assets, you may not have full control over all the assets listed. This does not mean that you will lose control over the economic benefits linked to the property that has been transferred.

Upon consultation with your attorney, you will have the choice of several types of trusts. A testamentary trust is one which is stated in your will. A living trust is one that you make use of during your lifetime. A revocable entity can be changed or cancelled and an irrevocable entity may not be changed or cancelled. The choice you make is dependent upon your current and future requirements.

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