Asset Protection Trust versus Asset Privacy
Requirements & Handicaps
An Asset Protection Trust (APT) is designed to shield wealth from lawsuits, creditors, and predatory claims. But for the trust to actually work in practice—not just on paper—it must be structured correctly and follow state government statutes.
And even when structured properly, there are trade-offs you need to understand.
Each state has different requirements. Overall they’re available in less than 23 states.
Requirements
1. In State Trustee
To get the protections afforded by your state of choice the independent trustee must be a resident of that state. Unlike other types of trusts, it cannot be you. It can be a natural or legal person. For example your lawyer or an LLC. An insurance bond for your new fiduciary could be prudent.
2. Title and Domicile
Assets must be conveyed to the trust. This includes bank or brokerage accounts, and business interests. Legal title must change otherwise there is no protection. This can mean that your ‘hired’ trustee is a signatory on high balance bank or brokerage accounts.
And your out of state real property is subject to the laws of where it is situated – not the asset protection state.
3. Setup Cost
These arrangements can get expensive. They’re mostly provided by lawyers who charge hefty fees. Doing it yourself and making certain everything is done correctly is a challenge. When considering the total value of assets at risk their fees do have merit.
4. Jurisdictional Conflicts
Even states with strong laws can have legal conflicts with the other states. Asset protection states can get challenged by the federal courts. Until they are universal among all 50 states there is a risk of conflict between neighbors. This also depends upon statutory rules and case law. What this means is there are no guarantees.
5. Strategic Timing
If you move assets into a trust after a threat appears, the transfer can be attacked as fraudulent conveyance. Most states have look back periods. They vary from 18-36 months or more to insulate again attack. This means you must think ahead and proactively plan with the statute of limitations in mind.
6. Specific Creditors
Some states exclude family-support claims such as alimony, child support and tax claims. Other states have fewer exceptions or broader protections.
Asset Privacy (Business) Trusts
The alternative is to use a Business Trust company for asset privacy. It is far more flexible and portable and stealthy.
There are no state statutory requirements. They can operate in all 50 states. You can be the trustee. They’re suitable for both personal and real property domiciled in any state. They’re relatively simple to setup and far less money. You don’t need an external third parties to participate. It’s just easier because there are fewer moving parts. The fewer people that know the better.
The Strategic Difference
- Asset Protection prepares for the fight.
- Asset Privacy prevents the fight.
What cannot be seen is far less likely to be targeted. Stealth is more powerful than armor.
