Our Georgia readers may have heard here and there about the importance of asset protection planning, but what exactly is it? Asset protection planning is an aspect of estate planning that involves limiting one’s liabilities in order to protect one’s wealth. There are various fronts on which asset protection planning can be implemented, and various ways to do it, depending on an individual’s circumstances.
One way to do asset protection is to set up a trust for this purpose. In years past, asset protection trusts have not always been viewed favorably by states, with many states refusing to honor such trusts. Because of this, many people turned to offshore protection—establishing trusts in countries with favorable laws.
Over the years, things have changed a bit and these trusts have come under increased scrutiny, while domestic asset protection trusts are becoming more widely accepted and honored. Now, 15 states permit the use of domestic asset protection trusts. Because of this, more and more investors are advising clients to make use of domestic trusts for asset protection.
One does not have to live in a state to set up a domestic asset protection trust there, but one will have to work with a trustee in that state. One can, for example, set up a trust to protect assets from potential liability. This can work well especially for professionals, such as physicians and attorneys.
The key with setting up a domestic asset protection trust is to do so with sufficient planning, well in advance. One cannot set up such a trust in response to litigation. To do so is to risk fraud. Setting the trust up correctly is also important, so the best thing to do is to find and work with an experienced attorney and other professionals as necessary.
Source: Wall Street Journal, “Creditor-Proof Trusts Replacing Offshore Accounts,” Arden Dale, August 8, 2013.