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By The Wyoming LLC Attorney Team

Oct 08, 2021
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Personal Asset Protection Trust

Asset Protection Trust

Summary

Personal Asset Protection Trust shields a grantor's assets from creditors and legal judgments. Despite limitations, it ensures asset protection and control over asset distribution through an Irrevocable Trust. Domestic and foreign options are available, with various asset funding methods.

A Personal Asset Protection Trust (PAPT) represents a Trust that protects a grantor’s assets from creditors and legal judgments. In fact, a PAPT offers you the strongest protection against asset seizure. As an Irrevocable Trust, the grantor establishes the terms and conditions of the Trust, such as which assets should go into the Trust and naming the beneficiaries of the assets and any income generated by the assets.

The one issue that might deter you from creating a PAPT is that as the grantor, you cannot name yourself as the trustee of the Trust. You have to name someone else to manage the Trust. You also cannot change the terms and conditions of the Trust. For example, you cannot modify the list of beneficiaries or remove certain assets from the Trust.

However, the benefit of strong asset protection from creditors and legal judgment overrides your inability to control a PAPT. You can also include a spendthrift clause, outlining the conditions under which a beneficiary gains access to assets and how the beneficiary should spend the money generated by the assets. For instance, a grantor of a PAPT can stipulate that a grandchild cannot access assets until the grandchild turns 18, and the money produced from the assets must go towards paying college tuition.

What Makes a PAPT Unique?

A PAPT is a unique type of Asset Protection Trust because it gets all of its legal power from the Living Trust document. It establishes specific protections for your assets after they pass on to the named beneficiaries. Most Living Trusts pass on assets immediately or after the grantor’s death. This can be a problem because the passing of assets can cause a beneficiary to lose other sources of income.

For example, let’s say one of your children receives government assistance of some kind. Inheriting assets from a standard Living Trust can reduce or eliminate government benefits.

A PAPT is a different method for passing on your assets while remaining in control of how you want the assets distributed and used. You stipulate conditions that keep the money derived from your assets in the hands of your loved ones.

What Are the Two Types of Personal Asset Protection Trusts?

You have the option to set up a domestic or a foreign PAPT. A Domestic Trust is created for a specific reason, such as protecting assets for a child’s home purchase. Make sure you consult with an estate lawyer first because some states do not allow the formation of a Domestic Trust. A Foreign Trust protects your assets by following the estate laws enacted in the state where you create the Trust. If a legal judgment goes against you, only the statutes created in the state where you live apply to the court’s ability to force the judgment against you.

How Do I Fund a PAPT?

You have several options to fund a PAPT. You can assign cash, securities, and business assets, as well as more valuable assets such as your home and other types of real estate. Examples of business assets that remain protected in a PAPT include equipment, inventory, and intellectual property. If you have formed a Limited Liability Company (LLC), you can place the LLC in a Personal Asset Protection Trust..

How Do I Transfer Assets?

Transferring assets is an important process that requires partnering with a highly skilled team of trusted professionals, including a lawyer, financial planner, and insurance broker. Because of the complicated legal obstacles that face a grantor who wants to create a PAPT, working with a team of trusted professionals can make establishing the Trust much easier.

Bottom Line

In conclusion, the Personal Asset Protection Trust provides powerful protection from creditors and legal judgments, ensuring control over asset distribution. With the options of Domestic and Foreign Trusts and various funding methods, consulting legal professionals is essential for its successful establishment. Setting up a Personal Asset Protection Trust can also be time-consuming. Working with experienced estate planning attorneys can speed up the process and help you determine which assets you should protect from creditors and legal judgments.