How To Set up a Trust To Protect Your Assets

A trust is an important estate planning tool that comes with many benefits. Once you set up a trust, you can maintain confidentiality and shield your assets from legal and debt liabilities. It’s important to understand the different trust types to choose the one that best fits your financial situation. Learning how to set up a trust can help you protect your assets, allowing you to leave more to your heirs.

What Is a Trust?

A trust is a legal agreement that assigns a third party to hold assets on behalf of another person or entity. Creating a trust is one of the most common ways to transfer the legal title of assets to another person. Adding a trust to your estate plan is a great way to protect your assets because it shields liability and helps maintain confidentiality.

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Benefits of Setting up a Trust

The many benefits of setting up a trust to protect your assets include:

  • Protecting against creditors: Transferring ownership of your assets to a beneficiary can help protect them from creditors.
  • Protecting against lawsuits: Shielding your identity through a trust can also help protect you against lawsuits.
  • Easier for beneficiaries to access assets: A trust can make it easier for your beneficiaries to access your assets because they sometimes allow trust holders to skip probate.
  • Maintaining assets until a minor becomes a legal adult: A trust can also help protect assets that belong to a minor until they’re of legal age and can manage them better.
  • Establishing privacy: A trust can hide a grantor’s identity, helping establish privacy when buying or selling assets.

An asset protection trust is a specific type of trust that aims to protect grantors from creditors, frivolous lawsuits, and judgments. This specialized trust type can help preserve wealth and make it easier for your beneficiaries to access your assets.

Key Takeaways

  • An asset protection trust has many benefits, including protection against lawsuits, creditors, and judgments.
  • Choosing the type of trust is one of the first things to do when creating a strategy to protect your assets.
  • A trustee maintains many responsibilities, including managing assets, filing taxes, and disbursing funds to beneficiaries.
  • It’s usually a good idea to consult with a lawyer to ensure your trust serves your best interests.
  • An irrevocable asset protection trust is one of the best ways to protect your assets now and in the future.

Steps for Setting up a Trust

Set up a trust to protect your assets with the following steps:

Consider the Type of Trust You Need

The first thing to do when setting up a trust to protect your assets is to consider the type you need. Many types of trusts exist, each of which serves its own purpose. A living trust is a legal agreement where the grantor is both the trustee and the initial beneficiary while alive. The assets in a living trust then transfer to a designated trustee following the grantor’s death.

An asset protection trust serves the primary purpose of protecting assets. Most asset protection trusts are irrevocable, which means they are permanent. With an irrevocable trust, the trust holder maintains full ownership and rights of all assets. Irrevocable trusts can’t be changed once executed. This is compared to a revocable living trust, a temporary agreement allowing grantors to add or remove assets or beneficiaries.

Asset trusts are also categorized in terms of domestic or foreign entities. A domestic asset protection trust is when a grantor chooses a beneficiary within the United States, whereas a foreign asset protection trust is regulated by the beneficiary’s country. Other trust types to consider include testamentary, spendthrift, special needs, and charitable trusts.

Select a Trustee

A trustee is a person who will be in control of your assets once you sign and file the trust. A trustee might be a family member, close friend, lawyer, or accountant. The trustee is in charge of assigning assets upon the death of the grantor or asset holder. The trustee also maintains other responsibilities, such as managing payments and filing taxes.

You can choose anyone you trust as a trustee as long as they’re at least 18 years of age and deemed mentally capable. Because an irrevocable living trust is permanent, consider your trustee choice carefully.

Name the Trust Beneficiaries

After choosing a trustee, you must select the beneficiaries. A trust beneficiary is a person or a selection of people who will inherit your assets. Beneficiaries are usually family members or close friends who will receive ownership of all assets included within the trust upon your death. You’ll name beneficiaries by listing their full legal name followed by the word “trustee.”

How To Set up a Trust To Protect Your Assets

Draft a Trust Deed

Once you choose your trustee and beneficiaries, you can begin drafting the trust deed. This legal document transfers ownership of your assets to the trustee. You can use a template to draft the trust deed. Some people might prefer to work with an asset management company to ensure they include all necessary information in the trust.

Fund the Trust

Funding the trust is the process of transferring ownership or titles. Some grantors choose to create a limited liability company (LLC) to make the transfer of ownership easier. The process of transferring assets or funds might depend on the type of asset. You may need to sign over ownership of certain assets or contact your bank or investment holders to complete all the necessary paperwork.

Consult With a Lawyer

Setting up a trust to protect your assets offers many benefits but can also be time-consuming. It’s usually a good idea to consult with a lawyer to make sure you don’t miss any steps. A lawyer can ensure you file all documents properly and have the best shield of protection against your assets.

Duties of the Trustee

A trustee has many responsibilities, and these individuals may delegate some of the tasks to third-party professionals, such as financial advisors or tax professionals. Here are some duties trustees are responsible for:

Protect and Preserve the Assets

Fiduciary duty is one of the most important roles of a trustee. The trustee should protect and preserve the assets and defend the trust against challenges. They must also separate the assets in the trust from their own assets and property, taking care to avoid co-mingling.

Manage the Trust Assets

The trustee is in charge of managing the asset’s funds. They might collect rent from properties, send out late notices, or be in charge of purchasing insurance or paying property management fees. Trustees manage bank accounts connected to the trust and pay all bills and debts.

Distribute Trust Assets

The trustee is responsible for distributing funds from the trust to your heirs. Many people choose an asset protection trust to make this process as easy as possible. With clear directions and beneficiaries, your heirs should be able to skip the probate process.

Prepare and File Required Tax Returns

Trustees are in charge of preparing and filing required tax returns. They’re also responsible for paying any taxes the trust owes. Maintaining accurate, detailed records of assets can help trustees manage their tax duties.

The grantor’s tax responsibilities might vary depending on the type of trust you choose. In an irrevocable trust, the grantor no longer has control of the assets and typically doesn’t have any tax obligations. However, the grantor might still be responsible for taxes in a revocable trust.

Set up a Trust Today To Protect Your Assets

A trust is one of the best tools you can use to protect your assets. Setting up an asset protection trust can shield your assets from creditors or lawsuits while you’re still alive. The trust then transfers your assets to your beneficiaries as listed upon your death, often avoiding probate. Understanding the steps and responsibilities of a trust is key to setting up and managing one.

Do you want to learn how an asset protection trust might benefit you and your family? Contact our team at Anderson Advisors today to set a plan in motion to protect your assets and preserve your wealth.

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