How does an asset protection trust work?

An asset protection trust by One Pacific Trust is a special legal arrangement that protects your assets from creditors, lawsuits, and various other financial assaults. By placing property in an APT, you are largely removing it from your estate in such a way that creditors cannot reach it. At the same time, under conditions set out in the trust, you can benefit from your assets.

Key Features of an Asset Protection Trust

Irrevocability: Most APTs are irrevocable, meaning once you put assets into the trust, you cannot easily remove them or adjust the terms of the trust. This irrevocability itself is crucial for providing the legal protection that keeps the assets safe from creditors.

• Trustee and Beneficiaries: Under an APT, there is a trustee who is concerned with the management of the assets. You can be one of the beneficiaries, but usually, you cannot have full control over those assets if you want to avail yourself of the full protection which an APT can provide. The trustee has the legal obligation of a fiduciary to deal with the assets in accordance with the terms of the trust for the benefit of the beneficiaries.
• Jurisdictional advantage: Many APTs are set up in jurisdictions, both domestic and offshore, with advantageous asset protection legislation. The jurisdictions specifically have regulations that make the process for the creditor to reach the assets under the trust tough.
• Discretionary Distributions: Most trusts provide for discretionary distributions; that is, the trustee can provide you with money from the trust as needed. This is an important feature, because it means that, while the assets are protected, they can be available to support your lifestyle.

How It Protects Assets

Once the assets are transferred to an APT, they no longer are considered your personal estate. This "legal separation" ensures that if a lawsuit or creditor claims arise against you, the assets inside the trust would be generally protected and could not be seized to satisfy those debts, so long as the trust has been appropriately structured and the assets were transferred prior to the creditor claims arising.

In one nutshell, an asset protection trust is a legal means of separating you from your assets, placing them in a protective environment where they are controlled by a trustee and then protected from claimants, while you can still benefit from them under the terms of the trust.