What Is An Asset Protection Trust?
An asset protection trust is a type of trust into which a person can transfer their assets. Once assets are in the trust, they have protection from creditors. There are primarily two types of asset protection trusts; one is referred to as a domestic asset protection trust and the other is referred to as a foreign asset protection trust.
An estate plan and an asset protection plan go hand-in-hand. In most cases, asset protection is just an extension of the estate plan that is put together for someone; it’s just another vehicle to make sure assets are protected for a family.
How Can a Limited Liability Company or a Limited Partnership Provide Asset Protection?
A limited liability company is an entity, much like a corporation, that is created under state law, into which a person can transfer their assets. Once assets have been transferred, it becomes much more difficult for creditors to gain access to the assets.
A limited partnership is actually quite similar to a limited liability company in that it is an entity and is created under state law as well. The creator of the limited partnership can transfer any or all of their assets into the limited partnership and those assets would thereafter be far more insulated from that person’s creditors.
On the other hand, creating a corporation, as opposed to a limited liability company or limited partnership, is not the best way to protect assets. If the owner of the corporation is sued for something that had nothing to do with the corporation, such as a bad automobile accident, not only would their personal assets become subject to liability, but so would their corporate assets. With a limited liability company or a limited partnership, there is far more protection of the entity’s assets.
What Is The Difference Between A Domestic Asset Protection Trust And A Foreign Asset Protection Trust?
A domestic asset protection trust is one that is created under the laws of one of the approximately 17 or 18 states that permit the use of a domestic asset protection trust. In those states, the person can transfer assets to such a trust and, assuming they do so before there is a problem, those assets would have the protection provided by law. A foreign asset protection trust is one created under the laws of a foreign jurisdiction with special asset protection laws, such as the Cook Islands or certain island nations in the Caribbean.
All asset protection trusts are irrevocable trusts. Without that quality, they wouldn’t provide adequate asset protection.
How Important Is Planning for Small And Midsized Businesses Or Professional Practices?
It is very important for owners of small or midsize businesses or professional practices to protect their assets. Professionals with high liability concerns might include doctors, accountants, architects or engineers, for example. The owners of small and midsize businesses are often subject to lawsuits ranging from age discrimination to sexual harassment, so it’s important for them to have asset protection in place as well.
For more information on Asset Protection Trusts, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (314) 542-2210 today.
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