protect assets, trusts are typically set up either in a state that has ‘self-settled asset protection trust’ legislation or in a foreign country that does not recognize US judgements. The laws in many jurisdictions provide that if certain requirements are met, no creditors can reach assets owned by a trust. Generally, there is a statute of limitations that must pass for the trust asset to be offered protection. Trusts are frequently used in tandem with LLCs and LPs to provide the client with greater protection, control and anonymity. What is the process involved in creating a legal structure such as the above for the purposes of asset protection? To implement an effective legal a ‘wrapper’ or ‘shield’ around assets to protect them, trusts work by isolating assets from potential claims. Rather than the client holding legal title to assets, clients can transfer assets they want to protect to a trust the client creates. If an asset is owned by a properly structured trust, laws are available that do not allow creditors to recover against this asset. The assets may be protected against claims even though the debtor can benefit (as a ‘beneficiary’) from the assets in the trust. This is possible because the client no longer holds legal title to the asset. Instead, a trustee (usually a family member, friend or trust company) holds legal title and is under a fiduciary duty to administer the trust for the benefit of the beneficiary. In the US, only an ‘irrevocable’ trust can provide any protection if the creator of the trust or beneficiaries of the trust are sued. When the creator of the trust is not willing to give up access to the trust assets but wants to 68 LAWYERMONTHLYMARCH 2023 structure to protect clients against claims brought by third parties, we must first understand the degree of risk and corresponding level of protection justified for the client. If the client is a retiree and unlikely to have creditor issues, we do not go to the lengths we would to protect assets for an ambitious entrepreneur involved in a high-risk business operation. Everyone can benefit from asset protection planning; the question is to what extent planning should be undertaken. We also must understand the client’s assets, goals and estate plan and be cautious of nuances and tax traps. Are there any significant pitfalls that are often encountered during this process? The most significant pitfall we encounter is that most clients will wait until it is too late to consider using asset protection
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