Understanding asset protection trust
By: Groshan Fabiola
In order to understand fully this concept everyone should clear up the term trust. First, the grantor is the person who shows the interest in protecting his assets. The trustee is the other part who is obliged to protect the assets. The trust is basically the contract between these two parts. Asset protection trust refers to a certain transfer of assets from the grantor to a specialize institution which will eventually protect the assets obliged by the Trust Contract.
There are two types of asset protection trust. The first one to be explained is the grantor type. What does this mean? It is all about the tax code. In this case the grantor maintains authority on his assets. This agreement supposes the fact that the contract would be interpreted as a disregarded legal entity. What is a disregarded entity and what does such a title signifies? This title means that this kind of entity is considered “Income Tax Neutral”. Through the asset protection trust, the grantor is obliged to pay his taxes for the assets which he got protected.
An asset protection trust may be of two types: revocable and irrevocable. The first one is nothing more but a formal contract which does not function as it is supposed to. The grantor maintains strong connections to his assets, so strong that they are not really protected. This kind of contract proves useful only at the moment the grantor gets involved in a lawsuit or in an avoidance of estate taxes procedure.
Basically the asset protection trust helps someone who is in one of the several situations: taxation, divorce or bankruptcy. So it is pretty easy to notice that is highly possible that the governments and the courts would limit these contracts. But they are not impossible to be concluded. An irrevocable trust is only one accepted in the case of mandatory spend-down provisions for qualifying into a nursing home.
So the asset protection system is a wide area of financial changes. And anyone can get a part of it. Being informed by a counselor or not each person can conclude an asset protection trust. It is just a simple contract. It would not harm anybody. And in the situations mentioned above it would prove of real help. The only thing that a grantor is supposed to do is the fact that he has to pay attention on the type of asset protection trust he decides upon, because there are certain kinds which would prove of no help. They are simple pieces of paper and nothing more.
Everyone should inform properly in order to avoid such situations. That is why each person should see from time to time a law counselor who could help in understanding all law procedures. The law system could prove extremely tricky if not treated with effective care. An asset protection trust properly formulated will help a lot the grantor. He would be able to surpass through a violent lawsuit without important losses. So it is important for him to try to assure of the validity of this act.
An asset protection trust would make easier someone’s financial evolution because it offers the necessary warranty in order to protect the assets. There are several questions concerning this topic and a law counselor should be able to explain his client all ambiguities. There are special firms which can serve their clients in this way and they offer trusty services. So, in spite of the fact that an asset protection trust could prove superficial, there are certain ways of getting assured of its validity. The client only has to be well informed and really interested.
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