What is an Asset Protection Trust?

On Behalf of | Oct 12, 2022 | Estate Planning

One of the top estate planning priorities people have is to protect their assets from seizure and maximize their value. They want their property to benefit their loved ones, not creditors.

If you have assets you want to shield from creditors, as well as lawsuits and judgments against your estate, an asset protection trust (APT) could be right for you.

What do APTs do?

Many different types of trusts can protect property. However, an APT is specific to protecting assets from creditors. These trusts are irrevocable, meaning that once you put property into them, you are no longer the owner. Instead, the trustee you name will manage them. 

Because you are no longer the owner of these assets, they are not attached to you. As such, creditors and others seeking payment from your estate cannot take the property in the trust.

Should I have an APT?

Shifting property into an APT can have considerable benefits in very specific situations. For instance, if one of your beneficiaries collects disability benefits from government programs, putting your assets into an APT could benefit them without jeopardizing their eligibility for these funds.

An APT could also be worth considering if you own a business and want to minimize the financial risk of defaulting on a loan. 

Understand, though, that an APT is an irrevocable trust, meaning you cannot change or control it once it is in place. This may not be an appealing feature for you if you don’t want to give up the management of the assets completely. 

Further, an APT is complex to set up. And some states, like Minnesota, do not allow the formation of a specific type of APTs: a Domestic Asset Protection Trust. 

With the benefits and drawbacks of APTs in mind, you might consider this as an option for safeguarding your property. However, because of the legal complexities of setting up this type of trust, legal guidance is essential. Discussing this and other asset protection tools and strategies with your attorney as part of your estate plan can be wise.