Trusts as Asset Protection

Clients in need of sophisticated asset protection will most likely use trusts. Some of the possibilities include:

• Beneficiary trusts with a “spendthrift clause:” Assets are placed in a trust, and only the appointed trustee can direct the funds inside the trust. The beneficiary, usually the person who earned the assets to begin with, gives up some control over the assets.
• Limited liability partnerships or companies: Business owners often form limited liability companies so that creditors cannot pursue the personal assets of the owners to pay business debts. This strategy provides more protection than a sole proprietorship or general partnership, in which owners and the business are legally considered the same.
• Irrevocable trusts, including Domestic Asset Protection Trusts (DAPTs): The problem with irrevocable trusts, as some planners like to say, is that they are irrevocable. If you place assets in an irrevocable trust, you no longer control those assets, and there is no going back on that decision. But because you no longer control how the assets held in trust are distributed, future creditors cannot force you to surrender them to satisfy a judgment It cannot be repeated too many times that the laws affecting Domestic Asset Protection Trusts vary from state to state, and that there is a “look-back” period (meaning only assets transferred before a certain date are unavailable to creditors.) Some advisors believe that the treatment of such trusts has not yet been sufficiently litigated, and therefore recommend against creating one.
• Foreign Asset Protection Trusts (FAPTs) are very sophisticated planning tools. It is legal and may be beneficial for American citizens to hold money and property outside of the United States, as long as they pay the appropriate U.S. taxes on the assets.

In some cases it may be wise to place assets in trusts held in foreign jurisdictions to protect them from potential future creditors. There are many complexities, however, and at Riverview we insist that our clients get top quality legal advice if considering a foreign trust, as with any sophisticated planning.

Our advisers understand how hard you’ve worked to build your assets. We will work in partnership with our resources to make sure you have the best possible asset protection strategy in place, and more importantly, to make sure you remain on the safe side.

SOURCES:

1. http://www.thinkadvisor.com/2012/03/29/5-problems-with-domestic-asset-protection-trusts?page=3
2. http://www.investopedia.com/terms/a/asset-protection-trust.asp
3. http://www.forbes.com/sites/jayadkisson/2012/12/25/zukerkorn/
4. http://www.forbes.com/sites/jayadkisson/2015/01/14/secrecy-does-not-an-asset-protection-plan-make/3/
5. http://www.forbes.com/sites/toddganos/2013/10/05/what-are-the-wealthiest-families-doing-about-asset-protection-part-3/
6. http://www.nolo.com/legal-encyclopedia/llcs-owner-liability-protection.html
7. http://www.forbes.com/sites/jayadkisson/2013/04/25/the-one-foreign-asset-protection-win-turns-out-to-be-a-dud-after-all-in-the-arline-grant-case/3/
8. http://www.assetprotectionlawjournal.com/articles/offshore-trusts/
9. http://www.nytimes.com/2013/12/15/business/international/paradise-of-untouchable-assets.html?pagewanted=all&_r=0

Contributors: Paula Pienkowska is the Director of the Wealth Advisory Group at Riverview Capital Advisers. Alan Arcadipane is a Business Analyst of the Business Advisory Group at Riverview Capital Advisers. Peter Gnall is a Private Wealth Adviser of the Wealth Management Group at Riverview Capital Advisers. Melysa Latham is a member of the Business Advisory Group at Riverview Capital Advisers.