When estate planning, it can feel overwhelming trying to figure out the best methods to use. Two common approaches people take toward managing their assets are a living trust and an asset protection trust, and each offers something different.
A living trust is a way to transfer your estate and is created during a person’s lifetime to help manage their assets. The owner (grantor) transfers their property or assets into a trust and names a trustee who ensures proper allocation to named beneficiaries after the grantor dies.
The grantor still manages their assets and takes payments from any income generated. The most common type used in estate planning is a revocable living trust, meaning the grantor can make any changes to the trust during their lifetime.
An asset protection trust (APT) is the strongest trust you can use to guard your assets against creditors, lawsuits, or liabilities. By putting named assets into an irrevocable trust and naming someone else as the trustee, the assets are no longer connected to your name and therefore cannot be pursued by creditors.
Both an APT and a living trust can provide for your family after you die and ensure your assets are allocated according to your wishes. Both also offer more privacy of your financial details and will help to avoid probate. The biggest difference between the two is that a living trust cannot protect your assets during your lifetime like an APT can. Assets held in living trusts are susceptible to litigation and creditors whereas an APT guards against this, making an APT a better choice for asset protection.
If you’re interested in including a trust as a part of your estate plan, it’s highly recommended you seek the counsel of an estate attorney. Living trusts are more straightforward than APTs, but both will be easier to complete with legal help. A good attorney can tell you what type of trust works best for your needs and can draw up the necessary documents so you won’t run into legal obstacles down the road.
If you are interested in forming an APT it may be worth your time to speak with different attorneys in the states where APTs are allowed to review all your options. Each state will have slightly different requirements and tax laws.