Although creating a trust can be an effective financial strategy for protecting your family, the type of trust you choose to open determines how much protection you are providing. A Family Asset Protection Trust, carefully drafted, can take care of every one of your financial objectives.
What is a Family Asset Protection Trust
There are two components for this type of trust: family and asset protection. Like other types of asset protection trusts, this type of trust prevents creditors from gaining access to both financial and physical assets. For example, if you put all your stocks into this type of trust, a creditor cannot liquidate the stocks to pay off a debt. The assets in this type of trust are also protected against lawsuit settlements and the decisions handed down by civil court judges.
A Family Asset Protection Trust prevents you from accessing the assets in the trust for financial gain. The assets are titled in the name of the trustee for the benefit of the designated beneficiaries, who are clearly defined in the trust agreement. The trustee, either a public or private trust company, assumes legal control of your assets. The primary objective is to ensure the trust carries out your wishes by distributing the right amount of assets to the correct beneficiaries.
Types of Family Asset Protection Trusts
All Asset Protection Trusts (APT) are established as irrevocable trusts, which means that after you create one, it is nearly impossible for a creditor to change the trust conditions by amending or revoking them.
Family Asset Protection Trusts come in three forms.
Not every state allows this APT. However, if you seek out a state which permits the formation of a domestic APT, you should discover it is one of the easiest types of APTs to set up. Note, you do not need to be a resident of Wyoming to form a Wyoming Asset Protection Trust.
Also called an off-shore trust, a Foreign APT is opened outside the American legal system. This type of APT can potentially offer more privacy and generous tax benefits. However, a Foreign APT is a costly type of trust to open and experiences additional scrutiny from the IRS. An offshore trust is generally not a good fit for those with fewer than $50,000,000.
The type of trust is opened to reduce or eliminate assets that could be counted or used to fund Medicaid. If you need to use Medicaid benefits for an expense such as long-term care, you are required to liquidate your assets first before accessing Medicaid benefits. A Medicaid APT protects your assets from liquidation so you can gain access to the financial assistance Medicaid offers.
How Much Does a Family APT cost?
Making a Family APT as part of your estate planning costs $15,000. If you want to open a Foreign APT, the price tag can exceed $50,000 plus management fees that run up to $5,000 per year.
What Are the Pros and Cons of a Family APT?
It’s essential to learn about the pros and cons of establishing a Family APT before you open one.
- Can protect recipients of Medicaid
- Full asset protection from creditors
- A domestic trust is easy to create
- Time & Expense to Establish
- Requires Trustee
Protecting your family financially is one of the most important things you do. Learn how a Family Asset Protection Trust can protect your assets from creditors, liabilities, and lawsuit settlements.