The Basics of Asset Protection Trusts

Death is not a topic that anyone wants to talk about. But as you age, it’s important to start having conversations about last wishes, especially when it comes to financial matters and how to protect your assets after death. During this conversation, something you should definitely discuss is setting up an Asset Protection Trust.

What is an Asset Protection Trust?

An asset protection trust (APT) is a self-settled trust that holds your assets and protects them from creditors, lawsuits, and other threats to your estate. When someone sets up an APT, a grantor is designated as a permissible beneficiary, and that person is then allowed to access the funds and assets in the trust account. Thanks to this structure, creditors are prevented from reaching the assets in the trust.  Once the owner of the APT passes away, the assets within the trust automatically pass to the beneficiary without the need for any court or probate action.

An APT can protect a wide range of assets, including cash, intellectual property, business or recreational assets, real estate, and limited liability companies, or LLCs. APTs are a valuable financial planning method not just for people who are wealthy or who have diverse assets, but for anyone who has at least $70,000 or enough assets to last them for the next five years. They can also be beneficial for people who have young children, as it provides a flexible way to determine how children receive assets after the death of their parent.

APTs versus Wills

If you’ve started thinking about how to manage your finances as you age, you’ve probably considered a will. A will is a written document that communicates a person’s final wishes, including things like custody of any minor children. It also outlines what to do with important or heirloom possessions, and determines what assets the person plans to leave to charity or specific family members. Like an APT, a will protects important assets within an individual’s estate after their death. It also ensures that their assets are protected or distributed in a way that meets their specific desires.

However, there are some key differences between an APT and a will, and a few reasons why an APT might be the better choice. One big difference is that a will only goes into effect after a person dies. An APT, on the other hand, not only ensures that an individual’s assets will be appropriately handled after their death, but also gives them more control while they are still alive. Additionally, if someone is seriously injured or becomes ill to the point of being unable to handle their own finances, an APT provides more protection than a will, which only goes into effect after death.

While setting up an Asset Protection Trust may be initially more expensive than a will, it has benefits that a will does not provide, and will make everything easier for your family after your death, and gives you more flexibility with your assets while you’re still alive.

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