Basic Information About Asset Protection Trust

The asset protection trust can be used to hold stocks, bonds, mutual funds, insurance and annuity investments. The asset protection trust is established under the laws of a foreign country that can provide certain advantages that cannot be achieved with a strictly domestic structure. A trust is nothing more than a contract between the person who wishes to protect his assets (the Grantor) and the person who will manage the assets (the Trustee) for the benefit of all Beneficiaries, which may include the Grantor, his spouse, children and grandchildren.

The asset protection trust's contract requires the transfer of assets from the original owner or the Grantor to a legal entity for the purpose for which the Trust Contract was created. In using the asset protection trust the individual does not usually sacrifice any degree of immediate control and access to his property. All accounts are transferred into the Trust but can remain at their current financial institution.

There are two types of asset protection trusts: Grantor and Non-Grantor. The Grantor asset protection trust has a special place within the tax code and it is treated as a disregarded legal entity. This means that the original Grantor has retained strings attached so that for purposes of the IRS he retains the assets in his complete control, thus he did nothing for the purpose of asset protection. Also the income tax benefits and income tax expenses are retained, thus he pays income taxes on the income of the trust.

The Non-Grantor asset protection trust is a trust that it is owned by an individual but is instead viewed as a taxable entity. Contrary to the Non-Grantor asset protection trust, the Grantor type is a "pass-through" to his form 1040 i.e. real estate tax deduction and mortgage interest deduction on his person income tax return.

When deciding to make an asset protection trust it is also important to distinguish between revocable and irrevocable trusts. A revocable asset protection trust is a trust that can be revoked or canceled at any time by the settler. A revocable trust does absolutely nothing for asset protection. Many lawyers recommend revocable trusts for avoiding probate, recognizing that the trust is not worth the paper it's written on for protecting assets against frivolous lawsuits and the avoidance of estate taxes. Revocable is when the original person with the assets repositions the assets to a trust with strings attached. The Grantor, the Trustee, and the beneficiary are the same person in the casa of revocable asset protection trust.

An irrevocable trust is when the Grantor gives up complete control to an independent Trustee who in turn will use his judgment as Trustee to manage the assets for the beneficiaries of the trust. The Trustee must protect and must diligently invest but he cannot ever deal for himself. An irrevocable asset protection trust is a trust that cannot be changed or canceled once it is set up without the consent of the beneficiary. Irrevocable asset protection trusts offer tax advantages that revocable asset protection trusts do not as for example by enabling a person to give money and assets away even before he/she dies. An irrevocable asset protection trust is the only significant asset protection device for avoiding frivolous lawsuits, avoiding the probate process, avoiding estate taxes, and is the only device for avoiding the mandatory spend-down provisions for qualifying into a nursing home.

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