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A Complete Guide to Asset Protection Trusts in California

Asset protection trusts are one of the best ways to guard your finances against lawsuits, creditors, and other threats and a reliable asset protection attorney Los Angeles can do this for you.

They might sound appealing, but how do they really work? In this guide to asset protection trusts, we’ll cover the basics of what they are, how they work, and who should get one.

If you want personalized advice on the subject, get in touch with an asset protection attorney Los Angeles local.

What Is an Asset Protection Trust?

An asset protection trust (APT) will help you protect your assets from creditors, lawsuits, and others. They can be the most effective form of protection for your properties when structured correctly.

Irrevocable trusts provide greater protection, because the grantor, or creator, is not able to change the terms of the trust or control the assets included. Instead, a trustee will manage the assets and be considered the legal owner. 

Why Do You Need an Asset Protection Trust?

An APT holds some of your assets safely in a trust. Everything contained in the trust will be managed by a trustee, and that person will have legal ownership over the contents instead of you. An asset protection trust is a good way to guard your assets in several situations.

If you are facing issues like a lawsuit or creditors, for example, it’s helpful not to be considered the legal owner of some of your assets. While they’re in the trust, those assets will be off-limits to people suing you or seeking payment for debts.

There are all kinds of reasons people might want to set aside their money in a trust because it’s a reliable way to protect your money for long periods of time. 

How Do You Set Up an Asset Protection Trust?

Before you can set up an asset protection trust, you’ll need to find a trustee. A trustee can be an individual like an attorney, but a bank can also play this role. Someone with legal expertise is a good choice for this role because they can ensure the process goes smoothly.

Once you have a trustee, you can move forward on creating the trust document. This is a complicated legal document that establishes the trust as an entity and allows it to keep your assets safe.

Here, you’ll need to name your beneficiaries and set the terms of the trust. Sometimes, you’ll be listed as a beneficiary, but if you plan to use your trust to pass money on to your heirs, you can list them instead or in addition to yourself.

Once the document is complete, you’ll need to fund the trust, which means transferring your assets to the APT.

This can be a difficult process, and it usually involves legal and financial experts. You’ll need to transfer ownership of property and vehicles from yourself to the trust, in order to have them listed as part of the APT. 

Who Needs an Asset Protection Trust?

Asset protection trusts aren’t the right choice for everyone, but for some people, they can be the best way to safeguard their finances.

Business owners and other people who could face lawsuits are good candidates for this type of trust. Industries that are highly regulated could face legal action from the government, for example. Other business owners may be concerned about lawsuits from employees.

Some people are more likely to be sued than others, whether because they are highly visible in the community or because they work in a profession with high liability. People in this category with a lot of liquid assets may want some security in the form of a trust.

Other people may want an APT to easily transfer assets to their heirs after death. An APT will provide your heirs with certain protections from creditors or in the case of a divorce. 

Types of Asset Protection

  • Irrevocable Asset Protection Trusts

Irrevocable asset protection trusts are structured so that the terms, once set, can’t be changed. You, the grantor, will no longer be considered the legal owner of the assets in the trust.

Instead, the trustee is considered the legal owner of the assets and will manage them, pay taxes on them, and distribute them according to the terms of the trust. 

  • Irrevocable Medi-cal Asset Protection Trusts

This option helps people protect their assets while paying for medical care. Some people use this type of trust to protect their most valuable assets, including their homes and cash. 

  • Irrevocable Beneficiary Inheritance Trusts

This type of trust is a valuable part of an estate plan and will protect an inheritance for your beneficiaries.

If they are dealing with debt or in the middle of a divorce, for example, beneficiaries can leave their inheritance in the trust for safekeeping.

  • Revocable and Irrevocable Special Needs Trusts

This type of trust is created on behalf of someone who will likely get support from government benefits.

This kind of trust will offer financial support to a person with special needs without causing them to lose their benefits or be disqualified from receiving them. 

Frequently Asked Questions About Asset Protection Trusts

1. What is the difference between revocable and irrevocable asset protection trusts?

A revocable asset protection trust allows you to maintain control and ownership over your assets. You can make changes to the trust whenever you want. An irrevocable APT cannot be changed for any reason, and you do not maintain legal ownership of assets in such a trust. 

2. What other areas of law should an estate family lawyer be familiar with before practicing asset protection planning?

When you choose a lawyer to help you create an APT, look for someone who is also knowledgeable about debtor law, state taxes, bankruptcy, and other laws that may affect your trust. 

3. Are there any tax reasons to establish an asset protection trust?

In some situations, this kind of trust can lessen your state tax burden. Since APTs are irrevocable, the assets contained in them are not considered part of the grantor’s estate.

Asset protection trusts can help you keep your assets safe, and protect your beneficiaries’ inheritance after you pass on. This kind of trust is a great tool for estate planning, and a lawyer can help you navigate the many conditions and types of ATPs.

For a free consultation so you can learn if an asset protection trust is right for you, contact us at McKenzie Legal & Financial today.

Thomas McKenzie Law
Estate Planning Attorney in California. Full-service law firm specializing in estate plans, wills and trusts, long-term care, and financial consulting. Thomas L. McKenzie received his Juris Doctor degree from Western State University College of Law, in Fullerton, California. While working full-time at night and attending full-time daily classes, Tom graduated law school with honors in 1993.

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