What is an asset protection fund and how can I benefit from one?
Asset protection funds can be very powerful for people who are trying to manage their estate. What it does is put your assets outside of your actual estate and hand them off to a third-party, the trust. The trust will then manage this asset and transfer it to your successors when you pass, depending on the terms.
But some people may wonder how they are different from things like wills and why people should opt for them. Let’s take a look at what asset protection trusts are, some of their top benefits, and who should consider getting one.
What is an Asset Protection Fund Actually?
In order to really understand what an asset protection trust is, you have to understand the difference between irrevocable and revocable trusts. With revocable trusts, terms can be changed by the settlor at any given time. And the settlor also retains some control over the assets.
On the other hand, an irrevocable trust’s term cannot be modified at the will of the settlor and the trust’s assets are now fully the trustee’s responsibility. And this is why asset protection trusts, which are an irrevocable form of trust, are so powerful. Since the terms cannot be changed by the settlor, a court cannot order them to change the terms in order to release some of its assets.
It is More than an Estate Planning Tool
While these kinds of trusts have been closely associated with succession, that is not actually their main purpose or characteristic. What asset protection trusts do is make sure that your assets are protected from legal actions against you. With these, the assets technically no longer belong to you, but to the trust. So, if you or your business is getting sued, they won’t be able to touch any of the assets that are in that trust. These assets can then blossom, gain in value, and then passed down.
They Can Be Formulated to Adapt to Changing Needs
While the terms of a trust cannot be changed by the settlor, they can be worded in a way that will take care of changing situations later on. For instance, if you’re afraid that one of your successors ends up dealing with addiction and uses the trust’s benefits to support their habit, there are some ways that you can include it into the trust’s terms.
Another thing is if one of the successors is or ends up being disabled. The benefits could end up disqualifying them from certain government benefits. But by establishing a special needs asset fund, they could still be eligible for government help and use the benefits to supplement their income.
Asset protection funds, even if irrevocable, still give you a lot of control. If you only want the benefits to be awarded once a person reaches university, for instance, you can draft it into the terms. Or you can demand that the benefits can only be used for medical purposes if that’s what you want.
Asset protection trusts can be very powerful estate and asset protection tools when used correctly. More people would gain from knowing about them, and how they could use them to protect their assets and manage their distribution.
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