In an ever-growing world of uncertainty and litigation, everyone is looking for ways to legally protect their assets. A popular method is devising an Asset Protection Trust (‘APT’). There are many advantages to using APTs, which include shielding assets from litigation from future creditors and even providing protection against one spouse taking assets from another spouse in the event of a divorce. APTs are typically favoured as preventive measures for potential future liabilities and, if properly constructed, can be quite effective in protecting your assets from being reached by anyone other than the beneficiaries.

APTs Can Benefit Everyone

APTs are not just for ultra-wealthy individuals. They can benefit anyone who has any assets, including property, stocks and real estate. Even if you do not contemplate ever being in a position of liability, APTs can still offer advantages to its beneficiaries from a tax perspective.

Moreover, trusts, if properly established, can be an effective tool used to protect assets from being wasted quickly by the beneficiary(ies) and can be used to mitigate the effect of inheritance tax upon the death of the owner. The beneficiaries may be either children or adults. The effect on the amount of inheritance tax one would have to pay depends on the state/country one is residing in (and, in the case of real estate, in which jurisdiction the real estate property is located).

APTs are especially favoured by individuals (and typically high net worth individuals) wishing to protect their assets prior to marriage without having to sign and negotiate a prenuptial agreement. In fact, there are some countries which consider prenuptial agreements as unconstitutional and, so, their courts won’t enforce such contracts. However, with a properly constructed trust, courts must abide by the trust instrument.

Taking the Fear Out of Trusts- Know Your Options 

There are several types of trusts available, depending on your unique circumstances. Some popular types of trusts include discretionary trusts, fixed trusts, QTIP trusts, irrevocable trusts, and dynasty trusts (which are typically used to transfer assets to future generations).

In order for assets to be unreachable to creditors, the assets must not be under the control of the grantor (the person handing the assets over to the trust). This is accomplished by placing the assets in an irrevocable trust, which gives the trustee control over the assets. Losing control over your assets is what people fear the most. However, this does not have to be scary, and a trust can be constructed in a manner that will simultaneously protect the grantor and allow the grantor to legally maintain some control over the assets in the trust. This is where an experienced lawyer should be consulted, as everyone’s circumstances are different.

The important aspect is that there are different types of trusts, such as discretionary trusts, resulting trusts, living trusts, etc. However, not all trusts are effective asset protection devises, and the key to making your assets more secure is to separate your ownership from the asset. That means permanently transferring your asset into a trust that is wholly controlled by the trustee. This would still allow the beneficiary(ies) the capacity to receive discretionary payments of income and/or principal, but only if the appointed trustee approves such payments. The beneficiary(ies) would still have equitable title over the trust assets. Under certain circumstances, the grantor may still be able to retain management of the trust, whilst still effectively relinquishing ownership of the asset(s).

APTs in the United States

In the United States, APTs are permissible in states which have legislation allowing for such trusts. Trusts can be established in states that will allow the beneficiaries to take advantage of tax benefits. For example, a trust can be established in Nevada that will offer 0% state income tax (with certain limitations on property held in trust). Dynasty trusts, which are used to transfer assets to future generations, offer tax-free distributions as well. To establish a U.S. trust, you do not have to be a resident or a citizen of the United States. U.S. trusts also offer the beneficiaries and grantor their privacy, so that their names are not made public. Establishing a U.S. trust is fairly simple and can be done quickly.

For all types of trusts, a trustee needs to be appointed to manage the trust. Therefore, an experienced lawyer should be consulted throughout the entire process to ensure that the assets are being properly transferred to the trust and allowing for the maximum asset protection possible, given your particular circumstances.

For more information on APTs in the United States or Cyprus, please contact us at [email protected]  

By: Emily A. Georgiades, Managing Director

E.A. Georgiades & Co LLC

www.eaglaw.co

About the Author:

Emily Georgiades is an experienced corporate and finance lawyer licensed in the United States and Cyprus. She represents high net worth clients internationally and has been published in many notable publications.

By: Emily A. Georgiades, Managing Director E.A. Georgiades & Co LLC