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Everyone needs asset protection. It’s why we use bank accounts, purchase insurance, and, of course, establish an estate plan. People with complex assets, significant wealth, or unstable family dynamics may need more protection than others, however. For them, a plethora of tools exists, the most powerful of which may be an irrevocable trust.
Protecting wealth can take a range of forms depending on individual needs. Maybe you anticipate a divorce. Maybe you’re worried about creditors or about minimizing estate taxes. Or, maybe you run a business or are concerned about qualifying for Medicaid. An asset protection trust has an answer to each of these concerns, but does not provide a one-size-fits-all solution. Different trust types serve different purposes. Here is what you need to know.
All asset protection trusts share the common characteristic of being irrevocable. This means that when you place assets in this type of trust, you surrender ownership, a measure of control, and valuable roadblocks to getting them back in your name. While the disadvantages here are obvious, there are plenty of situations in which an irrevocable trust is the only way of preserving your life’s work.
- Domestic Asset Protection Trusts
Established within the US, domestic asset protection trusts provide the advantage of not requiring you to move your money abroad. Nonetheless, these are a relatively new type of trust and are not allowed by all states. If you’re considering a domestic trust, it’s important to speak with an experienced estate planning attorney who can walk you through their numerous pros and cons.
- Foreign Asset Protection Trusts
Sometimes referred to as an “offshore” trust, these are more well-known than their domestic counterparts and more powerful, too. By virtue of being set up outside the US, foreign asset protection trusts are less accessible to creditors or claimants. Their use is governed by the laws of the country in which they are held, which are often designed to attract investment in such legal tools. Nevertheless, most countries cooperate with law enforcement and so a foreign asset protection trust does not shield assets gained through criminal activity.
However powerful, foreign asset protection trusts are neither cheap nor risk-free. Setting one up sometimes requires creating an offshore company (which may carry tax implications) and holding assets in a foreign country means accepting the danger of any possible political instability.
- Medicaid Asset Protection Trusts
Only the extraordinarily wealthy can afford to pay for long-term care out of pocket. The rest of us must rely on some form of insurance, and for many, this means Medicaid. However, qualifying for Medicaid depends on meeting minimal asset and income limitations, which many middle-class families exceed. A Medicaid asset protection trust is one tool that allows families in this position to reduce their assets such that they may gain needed coverage. However, because Medicaid employs a 5-year look back period, a Medicaid asset protection trust only works best if created at least five years before Medicaid is required.
Contact The Law Firm of Christopher W. Dumm
To learn more about protecting wealth and preserving your assets, do not hesitate to reach out to the Law Firm of Christopher W. Dumm either by calling 417-623-2062 or using the contact form on our website.