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Pros and Cons of Asset Protection Trusts

Asset protection trusts (APTs) can be valuable tools in keeping your most essential assets safe from creditors. An asset protection attorney Los Angeles can help you create a trust that protects you but is flexible enough to meet your needs.

Not everyone needs asset protection as part of their financial planning, but some people are perfect candidates for this kind of trust. How do you know whether or not an asset protection trust is right for you?

In this article, we’ll get into the pros and cons of asset protection trust and how they can benefit you.

How Does an Asset Protection Trust Work?

This type of trust is used to protect your assets from being collected by a creditor. The trust will hold certain assets and ensure that you do not have legal control over them. When they are outside your control, creditors will not be able to get access to them.

Surrendering control and legal ownership of certain assets means that litigious people or creditors cannot get access to those assets through you. Asset protection trusts are complex and require work from an expert estate planning attorney Los Angeles in order to serve their purpose.

These trusts are irrevocable, which means that you cannot change the terms or revoke them yourself. Instead, the trustee must be involved in any change made to the trust. Your attorney can help you draft a trust with enough flexibility for your specific needs.

Benefits of Incorporating an Asset Protection Trust into an Estate Plan

There are plenty of benefits associated with creating an asset protection trust. Not everyone is a good candidate for this type of trust, but it can be an essential form of financial planning for some.

Crucially, this type of trust still allows you to benefit from the use of assets included in the trust. You can still use an asset, such as a home while keeping it safely ensconced within a trust and out of reach of creditors.

You will still need to establish a trustee who has formal control over your trust and everything contained in it. However, you can create a trust in which you determine what happens to your assets, including investing and selling them.

An asset protection trust is the best way to protect your assets from anyone seeking them. That includes creditors and people who may sue you. It can be a useful deterrent of legal action against you.

For some people, such as those who own a business or have a career that exposes them to public scrutiny, planning for this eventuality is a good idea. It provides some extra security and peace of mind that bad actors will not be able to sue you and have financial gain from doing so.

Overall, a trust can help you keep your assets safe and make them much harder to access for creditors and litigious people.

Downsides of an Asset Protection Trust

Creating an asset protection trust does have some downsides. For some people, the cons of using a trust for asset protection may outweigh the benefits.

To properly protect your assets, you’ll need to put them into an irrevocable trust. This can’t be altered after it’s signed, and the assets contained will be outside your legal control.

Irrevocable trusts are very difficult to change. Your attorney can help you create a trust tailored to your specific needs, with a bit more flexibility built-in. However, the trust must hold your assets and remove them from your control in order for it to truly protect them.

An asset protection trust can be expensive to set up. They are complicated and require a lot of planning. Foreign APTs in particular cost a lot of money, so be sure that the fees are worth the security.

Asset protection trusts are not available in every state—currently, they are only recognized in 17, not including California. To create one, you may need to set it up in another state or country. A good attorney can help you do so safely and legally.

Not everyone needs an asset protection trust. If you are dealing with the threat of litigation, or have considerable debt, you may want to consider moving some key assets to one of these trusts to have some security.

Types of Asset Protection Trusts

There are several types of asset protection trusts catered to different needs.

1. Irrevocable Beneficiary Inheritance Trusts

These are designed to hold assets on your beneficiaries’ behalf so that they don’t lose them due to their debt, payments to an ex-spouse, or other situations.

Instead, they can wait to withdraw their inheritance at a more convenient time.

2. Special Needs Asset Protection Trusts

These are designed to hold assets for a disabled person who relies upon financial assistance from government programs. In order to qualify for monthly disability payments, for example, recipients must have less than $2,000 of assets in their name.

A trust can pay out monthly disbursements without compromising the disabled person’s eligibility for disability or Medi-Cal. 

3. Medi-Cal Planning Trusts

This has a similar function. Instead of using all your assets to pay for medical care, you can keep them protected in a trust.

Removing assets from your legal ownership will keep them safe and help you qualify for the program.

Is an Asset Protection Trust Right for You?

For many people, the benefits of asset protection trusts are immense. They let you set your assets aside legally without having to give them up completely.

All forms of estate planning will help you control your assets. Asset protection trusts in particular will help you keep them intact during your life, while estate planning determines what happens to them after your death.

Asset protection trusts, whether domestic or foreign, can be a powerful tool as part of your financial planning.

We can help you decide if getting a trust is right for you. For a free consultation from an expert estate planning attorney Los Angeles, 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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