A domestic asset protection trust protects an individual’s assets in an irrevocable trust. This is different from a typical irrevocable trust because you can be a beneficiary as the creator of the trust.
Why would a person choose this type of trust? Are there tax benefits? Here is what you need to know.
What Are the Benefits of a Domestic Asset Protection Trust?
An asset protection trust or APT has several different benefits. The main purpose behind these trusts is to protect assets from creditors. Say that you have a job with a high risk of civil lawsuits. If you work in the medical field, you may be at risk for malpractice suits. Likewise, if you work in finance or law, you may be subject to liability suits if you give poor advice. These lawsuits can break the bank. If you cannot afford to pay the suit, then creditors may seize your assets.
If you have any reason to believe that you are at risk of a lawsuit, it can help to have an asset protection trust because all your assets are safe within the trust. Another reason is that you can reap tax benefits. For instance, if you set up the trust in a no-income-tax state, then you may receive tax savings.
Are DAPTs for Everyone?
There are a lot of benefits to a domestic asset protection trust. This does not mean that you should dive into it without any thought, however. Asset protection trusts are complex. They are highly regulated. If there is anything wrong with the written trust, then the whole trust may be invalidated. If you have a high net worth and you are at risk of losing your assets due to creditors or lawsuits, then a domestic asset protection trust may be for you. Likewise, if you have beneficiaries that practice poor spending habits or have issues with creditors, you may want this type of trust also. No creditor can touch your assets when you have them safe within a trust.
Before you decide to set up a domestic asset protection trust, it helps to have some form of guidance. Even if your trust meets all the requirements, the courts can still argue the validity. If there is a challenge, it’s beneficial to have a lawyer present. If you are considering a domestic asset protection trust, discuss your options with a trust lawyer, like one at Yee Law Group, PC.