From the California Business Journal Financial Newswires.
When you’ve worked so hard to achieve the wealth that you have today, you need to do your best to protect it. This isn’t just for you, but for the members of your family as well. Asset protection refers to the combination of strategies designed to protect your assets from creditors and civil judgements.
Asset protection is a facet of sound financial planning. These are strategies, however, that still fall within the confines of the law. You’re essentially protecting assets without necessarily hiding them.
Learn more about asset protection and trusts and how they work below:
Facilitates Transfer Of Ownership
One of the easiest ways asset protection and trusts work is through the transfer of property ownership to trustees or family members. When a creditor has a claim against that property, it can be more difficult to seize when it’s no longer in the name of the person they’re after.
For example, a family member, heir or trustee can be gifted certain property even while the actual owner still lives or has full use and control over the property. In this situation, you can also avoid any unpleasant situations where your children might steal from you once you’re older and no longer as mentally capacitated to manage the properties which are still in your name.
This makes it harder for the creditors to determine actual ownership of the property. Even if you may not be expecting to be sued very soon, asset protection is still important to do, especially if you’re worried creditors will chase after you in the future. When you’re running a business, this is also a crucial step to protect your personal assets.
Permanent and Irrevocable
Asset protection and trusts are irrevocable. Consult experts from milehighestateplanning.com/asset-protection-trusts to ensure the transfer of assets to the trust is permanent. In the long run, you’re removing these properties from your ownership so creditors can’t go after them. In turn, the trust owns the assets and are then managed by the trustee.
The irrevocability of asset protection trusts applies to its two forms:
Domestic Asset Protection Trust
These are established only in the states where they’re allowed. In this kind, the asset protection trust is established only for a singular purpose, such as Medicaid.
Foreign Asset Protection Trust
These kinds of asset protection trusts refer to those that stay valid even offshore, or in foreign jurisdictions outside of the USA. These trusts are advantageous, such that when a creditor wins against a lawsuit against you in a US court, this wouldn’t be enforceable in the jurisdiction of the place where your trust is held.
Works As A “Self-Settled” Spendthrift Trust
An asset protection trust also works differently from other forms of trusts, being that it’s in a “self-settled” spendthrift arrangement. Here, you, as the owner of the property, are the settlor and also the beneficiary of the assets. Therefore, you retain quite substantial control over how the assets are going to be used.
In this kind of arrangement, you as the owner fund the trust. When you’re no longer around or when you no longer exercise ownership over the assets, the beneficiaries benefit from these.
Here are other key points to take away:
–The trust, when placed in asset protection, becomes a separate legal entity, so it can own bank accounts, property and investment accounts.
–The trust is now separate from you, the settlor so if you’re sued, the trust stays protected.
Avoids The Probate Process
The probate process is one that your heirs or beneficiaries will undergo in court for the distribution of your assets through your will once you pass away. This is needed in instances where all your properties are still in your name, but you’ve already decided on the manner of distribution. However, court probate proceedings can be time-consuming and costly. Your heirs may also not get the full amount of their inheritance since your estate may be subject to deductions related to the proceedings.
A better way to distribute your assets is through placing it in asset protection and trusts. This enables your beneficiaries to skip the probate process upon your death. In asset protection, the ownership of the assets already resides with your heirs. The only difference is that while you’re still alive, you still have full control over the assets. Upon your demise, there’s no longer a question of ownership. Now your heirs and beneficiaries can enjoy full use of the property.
If you have quite a substantial amount of assets obtained in your lifetime, it’s worth looking into the different forms of asset protection. Remember, you didn’t work hard, just to have your efforts wasted. As you go through different forms of financial planning, asset protection should form part of your strategies, so you can enjoy peace of mind for yourself and your family.