Can a Trust Protect Your Assets?

Using a Trust for Asset Protection Planning

by Bob Matthews

Many lawyers, especially those who are not experienced in the field of asset protection, tell their clients that a trust is all they need to protect their assets. In addition, many unscrupulous promoters are selling all kinds of abusive trusts that claim to avoid taxes.

Let’s examine what a trust is and what it isn’t in the context of asset protection. The trust is probably the oldest form of entity for financial planning. It’s been around for many centuries. A Venetian merchant, a tall ship captain or a medieval knight leaving home for an extended period of time who wanted someone he could trust to manage his estate while he’s away is the beginning of the concept of “trust”.

A trust, in its simplest form, consists of three parties:

  1. The grantor or settlor – this is the person who puts his assets in the trust. Using the previous examples, the merchant, the ship captain or the knight would be the settlor.
  2. The trustee – this is the trusted individual or firm to whom the settlor entrusts his assets. He, by agreeing to be the trustee, must abide by the specifications spelled out in the trust document, which is drafted by the settlor. The specifications typically include how the assets should be invested and to whom and when the trustee should distribute assets from the trust.
  3. The beneficiaries – these are the persons who are going to receive assets from the trustee in accordance with the specifications in the trust document. The beneficiaries can be the spouse and children of the settlor, a charity, a college, and/or quite often, the settlor himself.

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