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How an Asset Protection Trust Protects Your Assets

Nathan R. Olansen
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No matter how much money, real estate, and other assets you own, one of your goals will always be to protect those assets. From the small business owner to the high-profile individual, you never want to give up any of the wealth you accumulate throughout your life, but it can happen. The U.S. is a litigious country, and in America, billions of dollars are spent on lawsuits across the country. Protecting your assets should be a top priority.

If you are considering setting up an asset protection trust, ensuring you understand everything about it is crucial. The ramifications are different than other kinds of trusts. To learn more about the considerations associated with adding an asset protection trust to your estate plan, talk with our team at Midgett Preti Olansen PC by calling 757-687-8888 or using our online contact form.

elderly couple sitting down with an estate planning lawyer

Reasons You Need to Protect Your Assets

Protecting your assets from future creditors’ claims, IRS, and Virginia estate taxes is something everyone with assets should consider. Even beyond creditors and income taxes, you also want to consider what will happen to your assets when planning for long-term care for your health or if you eventually need specialized housing (e.g., a nursing home).

You do not want to make the mistake of another party stepping in at some future date and claiming rights to your assets. Another reason to protect your assets is to safeguard those you plan to set aside to leave to your children and other beneficiaries. By establishing a trust, you also protect your children’s inheritance from predators, creditors, spouses, and their spouses’ creditors.

When you set up an asset protection trust sooner rather than later, you can avoid these and other later problems. To protect assets under an asset protection trust under Virginia law, an individual must establish a trust that meets certain criteria. By speaking with a knowledgeable Virginia estate lawyer, you can receive sound legal advice while learning what needs to happen to meet each trust requirement.

How Does an Asset Protection Trust Work? 

elderly couple looking at paperwork

The Commonwealth of Virginia permits a settlor (also referred to as a “grantor”) to create a trust for his own benefit with spendthrift provision. This provision restricts the voluntary and involuntary transfer of assets to anyone else, including the settlor, settlor’s creditors, or other parties who may try to claim an asset. A self-settled spendthrift trust is an irrevocable trust and is generally referred to as a domestic asset protection trust (DAPT).

After you create a domestic asset protection trust (DAPT) under the laws of Virginia jurisdiction, the state no longer deems you the owner of those assets. Because of this, when you create this trust, the person to whom you designate control must be a person you view as a highly trustworthy individual.

Additionally, under Virginia state law, you can only create this type of trust if there are no applicable liabilities.

What Can I Put in an Asset Protection Trust?

You have numerous options for putting different types of assets into an asset protection trust. Cash, securities, LLCs, business entities, real estate, business assets, and even recreational assets are common valuables to transfer into this kind of trust.

While you can transfer assets, it is important to understand that trying to create a trust to skirt creditors or other financial obligations you have is illegal under Virginia fraud laws. However, if you work with an experienced Virginia estate planning attorney, you can use legal tactics to set up your asset protection trust to avoid inadvertent fraudulent transfers.

Tips for Keeping Your Assets Protected

An asset protection trust is not your only option to protect the assets you have worked hard to build. If you have substantial assets with a high numerical value, looking into ways to protect them should be a priority. The following are options to consider.

Set Up an Asset Protection Trust

One of the most common approaches is setting up an asset protection trust. The asset protection trust can safeguard assets from future creditors, lawsuits, bankruptcy declarations, and divorce settlements. To do this, you will need to establish the trust and then transfer your ownership of the assets you place into the trust.

Important to know — while a trust can protect you from creditors, a five-year transition period must occur before assets are “untouchable.” In other words, third parties may still bring a claim against your assets during this 5-year timeframe. Once the five years ends, your assets are protected. Your best option is to work with a Virginia estate planning attorney to set up the trust properly.

Use an LLC

Another approach to separate your personal and business assets is establishing a limited liability company (LLC). With an LLC, if your company becomes insolvent, someone brings litigation, or otherwise makes a claim on your assets during the course of business, they cannot come after your personal assets. This limited liability protection is an intelligent strategy for owners of businesses that are not corporations. Another factor to consider when establishing your LLC is the various taxation options you can take advantage of to hold onto more of your wealth.

Create an Estate Plan

Numerous surveys over the past several years point out that the majority of Americans do not have a valid estate plan or, if they do, have not made any updates to it. An estate plan should be considered a living document, meaning you should update it whenever a major life change occurs. As you get older, you will also want to consider how expensive it is to pay for home or residential health care if needed. Establishing an estate plan can often help ensure you can qualify for Medicaid to assist in paying for your care.

Thinking and talking about aging and death is hard, but setting up an estate plan is a good course of action to protect your assets and the future of your loved ones. It might seem overwhelming initially, but an experienced attorney can break it down and walk you through what you should include before they draft the document. Your lawyer can also explore options to minimize your tax liability, allowing you to keep more of your assets.

Do Not Disclose Finances 

To protect yourself further, do not disclose your finances. Once an unsavory individual realizes your wealth or discovers you hold assets, you could become a target for litigation. Even if their case does not have merit, it is easier to avoid the hassle and expense of protecting yourself. Keep your assets and financial status as private as possible, and make sure your employees sign an NDA.

Hire an Attorney

Instead of relying on just one strategy to protect your assets, use a variety of approaches. Hiring an attorney thoroughly familiar with the Virginia code is a great first step. Your lawyer will help construct a comprehensive plan to help you to protect your assets from being taken from you or your loved ones.

An Experienced Law Firm You Can Trust

While tax considerations are a large part of estate planning, it is not just about taxes. To make the most of your asset protection planning, connect with an experienced law firm you can trust. At Midgett Preti Olansen, we pride ourselves on providing complete, competent, and accurate service to each of our clients.

Our law firm has been serving Virginia Beach and the broader Hampton Roads area since 1999. Contact us today to learn more about asset planning and other services we offer, such as living trust administration, probate proceedings, power of attorney designation, and advanced estate planning. Call the law firm of Midgett Preti Olansen at 757-687-8888 or use our convenient online contact form. A member of our legal team will get right back to you.

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Written By Nathan R. Olansen

Shareholder

Nathan R. Olansen is a Shareholder in the law firm of Midgett Preti Olansen. His practice is focused on estate planning, probate and trust administration, IRS and state and local tax audit and tax collection cases, as well as individual and entity tax planning, asset protection and a variety of related transactional matters.

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