What is An Asset Protection Trust?

An Asset Protection Trust is a structure that does what its name suggests – it is designed to help protect assets by holding them in trust.

Developed by English common law over hundreds of years, Asset Protection Trusts are now used in many jurisdictions the world over, including the US, Channel Islands and several offshore locations.

The main purpose of an APT is to create a structure which separates the ‘equitable title’ (for the beneficiaries) from the ‘legal title’ (which is held by the trustees).  There are several different types of APT which would be used if:

  • You have substantial assets on which IHT would be payable;
  • You have substantial assets you wish to protect against any future creditors (not any creditors you may already have);
  • You have another reason to separate legal and equitable title.

As a consequence of transferring the property into trust, the asset may have enhanced protection against future claims by creditors, as any claim made can usually only be for the extent of the beneficiary’s own interest in the trust.

Do I need an Asset Protection Trust?

If you are uncertain whether an APT is right for you, your EHL advisor can help you to understand the benefits of a trust, and decide whether to protect your assets in this way.

You may also want to look into the advantages of APTs if you would be expecting to inherit from an individual who has substantial assets of their own, as a trust could help to make sure you receive more of your planned inheritance.

Property Protection and Asset Protection Trusts

One area where trusts are often used is to protect the family home for future generations.  In years gone by, placing your home into trust would protect it from inheritance tax, but that is no longer the case now.

However, there are many other reasons why people choose to hold the family home via a trust.  Some examples are that:

  • If the person you wish to inherit the property would not be able to manage its upkeep, the Trustees could deal with that for them
  • To prevent a surviving partner re-directing inheritance in the future (for example, if they were to re-marry)
  • To enable the property ownership to be put in place during lifetime, such that the house would not be subject to a probate application in the future.
  • To help protect against challenges that may be made to a Will if one beneficiary were to be favoured over another.

When used as part of property planning, Asset Protection Trusts allow named beneficiaries (such as spouses or children) to have the right to remain in the property in the future, but also gives you the ability to set out who will inherit after their death.

For more information, or to enquire about specific circumstances that apply to you, contact your EHL advisor.

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