Understanding What a Revocable Asset Protection Trust is
With the increased interest in asset protection strategies, it has led to some confusion on what they are and how you can use them to protect your wealth. There are many different strategies available to protect your assets and it is in your best interest to understand the different asset protection devices and how they can work for you.
The basic set up of a trust is a contract between the person desiring to protect his or her assets and the person who is in charge of managing those assets in the best interest of the beneficiaries who are the individuals who will receive the trust’s contents. When setting up a trust as a strategy to protect your assets you will need to determine if the asset protection trust will be a grantor or non-grantor trust. A grantor type trust is designed to be treated like a disregarded legal entity so that for purposes of the IRS he or she retains the assets in their complete control, thus doing nothing for the purpose of asset protection.
A revocable asset protection trust is a strategy that is best used to avoid probate, but most asset protection lawyers will not recommend this strategy if you are trying to protect your assets from frivolous lawsuits. A revocable asset protection trust is when the original person with the assets transfers the assets to a trust with strings attached. The grantor, the trustee, and the beneficiary are the same person. A revocable trust does absolutely nothing for asset protection.
Understanding the up and downsides to the numerous asset protection strategies available will help you establish a positive strategy that will hold up against frivolous lawsuits. Always contact a trained professional to determine which strategy is best for you.