Which Types of Asset Protection Are Available?
Asset-protection plans can be simple or complex, depending on your needs and the level of protection you want. Keep in mind that some trusts cost more than others to form and manage, so it’s important to strategize with your financial advisor to see which one fits your budget and needs. Asset protection plans include:
Living Trusts
People often draw up a simple will to ensure their assets are passed on to their designated beneficiaries. However, once you pass or become incapacitated, your estate goes to probate court before the assets are distributed. The probate court and legal fees can get costly.
To avoid these unnecessary fees, consider having your attorney draw up a living trust. With revocable living trusts, as the grantor, you can change the terms of the trust while you’re alive. Upon your death, the trustee distributes the assets to the beneficiary or beneficiaries. An irrevocable trust cannot be changed and allows for deeper asset protection and tax implications. Speak with your financial advisor as to which type of trust you’ll need.
Domestic Asset-Protection Trust (DAPT)
If you decide to create an irrevocable trust, and your state allows for it, consider having your attorney draft a domestic asset-protection trust (DAPT). This unique form of asset protection, also known as a self-settled spendthrift trust, allows you, the grantor, to also become a beneficiary.
However, the trustee of the DAPT is held to your time frame and requirements, whether you designate yourself as the beneficiary or someone else. An administrative trustee is the third party that makes up a DAPT. Only some of the states in the U.S. allow DAPTs, and Nevada is one of them.
Nevada Asset-Protection Trust
For over two decades, Nevada has been the leader in DAPT trusts. At Anderson Advisors, we can draw up a Nevada asset-protection trust (NAPT) that gives residents of Nevada, or those who wish to set up their asset protection trust in Nevada, top asset protection. Ease of use for the grantor of the NAPT is one of the primary reasons people use this form of trust. If you want to transfer assets into your trust, you can do so on a regular basis without having to sign a new affidavit of solvency, required for other DAPT jurisdictions.
Offshore Asset-Protection Trust
As an individual, business owner, or investor, if you have large amounts of high-value assets, such as expensive real estate, you may want to have an offshore asset-protection trust (OAPT). This type of trust does not allow local courts, such as any court within the United States, jurisdiction over the trustee.
Many offshore trusts are based in the Cook Islands or Caribbean Islands and have an excellent reputation for protecting self-settled spendthrift trusts. While an OAPT is a good way to protect your assets from financial threats, it is not meant to hide assets for unreportable taxable income. Because OAPTs are expensive to set up and maintain, you’ll want advice from your financial advisor to make sure this is the right trust for your situation.
Will Insurance Cover My Assets?
Insurance will cover some of your assets, but insurance policies are limited to how much and what they’ll cover. For real estate investors and property owners, insurance can help offset the cost of damage to the property and provide some level of security for personal property protection.
However, insurance can’t shield your assets from creditors trying to seize the property for repayment. Of course, you need insurance for your vehicle, boat, healthcare, and properties, but you also need to form a business entity and get an asset-protection strategy in place to protect your hard-earned wealth.