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Types of Asset Protection Trusts

Asset protection trusts (APT) can help you keep your assets safe from creditors. This kind of trust can deter litigation or help you achieve a more favorable outcome. An experienced asset protection attorney Los Angeles can help with the process.

Asset protection trusts are complicated to set up, but they will make your assets inaccessible to creditors, and they can also deter litigation against you.

In this article, we’ll cover several types of asset protection trusts and a few of the reasons you may want to create one.

What Are Asset Protection Trusts?

An asset protection trust is specifically designed to protect a person’s assets from creditors. Like all trusts, they transfer legal ownership of the assets contained to the trustee.

In order to effectively protect you, this kind of trust must be irrevocable. Otherwise, you will still have control and ownership over the assets within, and creditors can take them away through litigation.

It may take some consideration to choose what property you want to include in your trust because the terms and assets included in an irrevocable trust cannot be altered. That means you cannot remove assets from an APT once they are added to one.

In the case of APT trusts, the grantor is added as a beneficiary, allowing you to access the funds and assets contained in the trust without being considered the legal owner. Instead, the trust is its own legal entity that can hold a wide range of property.

People in high-visibility professions, or in community-facing roles, may sometimes establish this kind of trust in order to protect themselves when they suspect they may be sued. Business owners are one example of the type of people who may benefit from this.

These trusts can store essential assets like homes, so there’s no possibility of losing them in a lawsuit or due to unpaid debts. 

Asset protection trusts can be complex to set up, so it’s important to get advice from a skilled attorney as you learn about them and set one up. 

What Are Domestic and Foreign Asset Protection Trusts?

Asset protection trusts are available both in the US and in other countries. There are some pros and cons to each option.

Domestic trusts are easier to get, and they are more convenient to access. There are 17 states that offer this kind of trust, and you can create one without having to reside in those states.

An attorney can advise you on which state is the best option for you, because laws vary from state to state, and one may be better than the others.

Foreign trusts are those trusts established in another country. You may hear these referred to as offshore accounts. They tend to be more expensive to set up than domestic asset protection trusts.

They also offer more privacy, which is one of the main benefits of setting up a trust overseas. If you are using the trust to guard against losing assets after being sued, this may provide more protection. A foreign trust isn’t part of the US jurisdiction and is instead subject to local laws. 

What Types of Irrevocable Asset Protection Trusts Exist?

Irrevocable asset protection trusts cannot be altered once they are created, but they have many applications and benefits. Aside from protecting your assets from potential litigation, they can also prove useful in other situations.

To get personalized advice on how to create a trust, contact an asset protection attorney Los Angeles. Every situation is different, and a legal expert will help you make the best possible decisions.

Here are some examples of irrevocable asset protection trusts. 

Irrevocable Medi-Cal Asset Protection Trust

Medical care is expensive, and can easily eat into assets. This kind of trust allows people to qualify for Medi-Cal while protecting their vital assets, like property from potential medical debt. It also keeps creditors away from those assets once your beneficiaries inherit them.

Without an APT, Medi-Cal can cut into your estate after you die through a principle called estate recovery, which means that they can take any of your assets, including from beneficiaries, for reimbursement of the money they spent on you.

Having a trust will keep your assets away from Medi-Cal and let you pass them on to friends and family instead of having them recovered to settle your medical debt.

Irrevocable Beneficiary Inheritance Trust

An irrevocable beneficiary inheritance trust is a part of your estate plan and will go into effect immediately after you pass away. These trusts protect assets for your loved ones and allow them to take or leave their share of inheritance when it is convenient for them.

For example, a beneficiary may wish to leave their inheritance in the trust until a divorce goes through, to avoid losing the assets. This trust also protects them from creditors and litigation—and keeps assets in the hands of your intended beneficiaries.

Revocable and Irrevocable Special Needs Trust

A special needs trust will hold assets so they can be distributed to a disabled person. Programs like supplemental security income (SSI) and Medi-Cal provide critical support for low-income disabled people, but recipients must have $2,000 or less in assets in order to qualify.

A special needs trust will allow you to set aside funds for a disabled family member without causing that person to lose their insurance and government support.

Loss of insurance is especially devastating for a disabled person, and trust will make sure you can support them without them losing benefits.

Wrapping Up

Asset protection trusts can keep your assets safe when they are threatened.

APTs can be established domestically or in a foreign country. You can use these trusts to remove assets from your ownership in order to avoid losing them, or in order to help you or a relative quality for Medi-Cal.

They can also decrease the threats of lawsuits because your assets won’t be readily accessible through litigation.

Not everyone needs an asset protection trust, but they are indispensable for some. For a free consultation, 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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