An Asset Protection Trust (APT) is designed to safeguard your assets from potential creditors, lawsuits, or other financial risks. APTs used to be popular only for the wealthy, particularly among business owners, professionals in high-risk industries, and those with significant assets. However, due to recent changes in the law, APTs are now a valuable estate planning tool for anyone looking to protect assets – especially if your primary asset is the family home.
Below are four things to know about Asset Protection Trusts.
- What Is an Asset Protection Trust? An APT is a trust where you transfer ownership of your assets to a trustee, with the goal of shielding those assets from creditors or lawsuits. In Connecticut you may be both the grantor and the beneficiary, as long as you have an independent third party trustee in place. However, since you may remove or replace that trustee at any time, you effectively maintain control over the trust assets.
- How Does an Asset Protection Trust Work? When you establish an APT, your assets are transferred into the trust and managed by a trustee. Importantly, the trust is usually irrevocable, meaning that once the assets are placed inside, they must stay there. You maintain asset protection because creditors cannot force you to transfer assets that you no longer directly own or to which you do not have full access. However, you may still benefit from those assets, for example, through distributions of income from the trustee or via a retained lifetime power of appointment.
- Benefits of Asset Protection Trusts. APTs may: prevent creditors from seizing assets in the event of a lawsuit or bankruptcy; protect assets for future generations, ensuring long-term financial security for your heirs; offer a higher level of privacy, shielding your assets from public record; and be an effective tool for passing on wealth in a legally protected and tax-efficient manner.
- Who Should Consider an Asset Protection Trust? Historically, APTs were used mostly by individuals who face higher risks of lawsuits, such as business owners, doctors, and lawyers. However, due to recent improvements in the law, APTs are now useful for any family looking to protect assets, especially the family home. In fact, one could argue that if your only significant asset is your family home, then it is even more important to have an APT in place.
Note also that, usually, your assets must be in the trust for at least five years to have full protection; therefore, if you are interested in an APT it is important to move quickly.
Please reach out to us at jfournier@jeflegal.com or by calling 860-670-3535 if you have questions about Asset Protection Trusts, or any other legal issues related to your business or estate planning.