What Financial Advisors Need to Know About Asset Protection Trusts--A Practical Overview

Bove Jr., Alexander A.
August 2004
Journal of Financial Planning;Aug2004, Vol. 17 Issue 8, p46
Academic Journal
•Asset protection is a common objective of many families' financial and estate plans, and financial advisors should have a working knowledge of the fundamental concepts. • The first key is to understand fraudulent transfers can result in a court voiding a gratuitous transfer made when a creditor's (or potential creditor's) claim is threatened, pending, or expected, even though no claim has been filed. • Some types of irrevocable trusts can be established for the benefit of one's self and family that will protect the assets in the trust. The most aggressive of such trusts may be established domestically, such as in Alaska, Utah, and Delaware, and in several offshore jurisdictions. • Alternatives to setting up a domestic asset protection trust include an income-only trust for yourself or a spendthrift trust for another party. • Even though a person can transfer property for asset protection purposes, he or she can retain the property for tax purposes. • Domestic asset protection trusts have not been tested in the courts, and many commentators believe there are constitutional issues that may render them vulnerable. Offshore trusts have been tested numerous times, and where properly set up, have withstood aggressive creditor attacks. • Offshore trusts have several drawbacks, however, including additional tax reporting and the challenge of dealing with a trustee in a foreign Jurisdiction. It is possible to have an offshore trust hold its assets in the United States, but care must be taken. INSET: Executive Summary.


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