While starting a business comes with a lot of tax benefits, it also comes with a lot of risks. Different types of insurance and asset protection arrangements like Limited Liabilities Companies (LLCs) are the two major strategies to secure your property from redskins and liabilities.
Asset protection refers to the use of techniques to safeguard one’s assets. Asset protection is a financial planning component that tries to protect one’s assets against creditors. Asset protection measures are used by individuals and businesses to limit creditors’ access to certain valuable assets while remaining within the boundaries of debtor-creditor law.
Asset protection assists in the legal protection of assets without resorting to unlawful tactics such as concealment (hiding assets), contempt, fraudulent transfer (as defined by the 1984 Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud.
Asset protection trusts are divided into two categories:
- The Domestic Asset Protection Trust (DAPT) is a trust established in another state, such as Nevada, where the laws are more favorable to asset protection than in California.
- The Foreign Asset Protection Trust (FAPT) is a trust established in a country other than the United States, such as the Cook Islands, where your assets will be safer than in any state in the United States.
Both of these forms of trusts provide some of the most effective asset protection. Setting up a foreign or domestic asset protection trust will significantly reduce the chances of your assets being taken by a vengeful creditor, and it will also serve as a bargaining tool in the event of unfair claims. However, you will probably not be surprised to learn that these trusts are not free. Creating a trust in a different state or country may save you money in the long run, but it will almost surely cost you in the short term.
Below we will discuss how much asset protection trusts cost, and whether this price is right for you:
The cost of asset protection
According to the Wyoming Trust & LLC Attorney, there is no established formula for calculating how much an asset protection trust costs. The cost of setting up a trust to protect your assets is determined by a lot of circumstances, but we can present you with some approximate figures to help you budget for the future. For a domestic asset protection trust, the first setup fee should be at least $12,000, and for a foreign asset protection trust, it should be at least $25,000, as explained in this example. You should expect to pay thousands of dollars in annual maintenance fees in addition to the five-figure initial setup fee. An overseas asset protection trust has greater maintenance fees than a domestic asset protection trust. Some of the maintenance fees you pay go to your estate planning attorney, but the majority of the payments go to the trust business to reimburse them for their services.
Factors that influence the cost of asset protection
There are several elements that influence the cost of establishing an asset protection trust. While we won’t be able to go over all of them, it’s worth going over a few of the most important. The location of your trust is the first and most obvious factor. You will pay much more to establish an asset protection trust in a foreign jurisdiction, such as the Cook Islands, than you would in Nevada or another U.S. state.
Part of this is simply due to the higher cost of conducting business abroad, but one of the main reasons why overseas trusts are more expensive than domestic trusts is due to the increased compliance costs imposed by the government. As you already know, some people (and large organizations) shift their assets offshore to avoid paying federal taxes, so it’s no surprise that the government will be wary of anyone who moves their money offshore. As a result, if you hold a FAPT, you must comply with certain IRS Asset Protection obligations, such as filing Forms 3520 and 3520-A on an annual basis. However, you will receive even more safety from a foreign asset protection trust than you would from a domestic trust in exchange for the greater fee.
Complexity is another key thing to consider. Not all trusts are created equal. When a client’s assets are more intricate, with a greater range of investments, the attorney will have to devote significantly more time and effort to establishing the trust. The complexity of the trust document will also vary. Also, one should not automatically think that domestic asset protection trusts are less complicated. They can be extremely complicated in and of themselves.
How asset protection helps your business
Asset protection is an excellent strategy to ensure that your business is not disrupted. Most businesses that do not have their assets properly insulated face a slew of issues, particularly when dealing with creditors. This is because creditors have a legitimate claim to a portion of your business’s assets if the asset isn’t protected. In a nutshell, creditors may be able to seize some of your company’s most valuable assets. As a result, a portion or all of your company’s operations may be halted.
You and your company’s reputation may suffer as a result of such a major setback. Asset protection, on the other hand, ensures that you have all you need to handle the challenges that come with having unprotected assets in your company. This is accomplished by limiting the assets to which creditors have access.
Final Thought
When it comes to asset protection trusts, there is a clear trade-off to make: peace of mind against cost. It is not always possible to strike a balance between these two values, which is why speaking with an asset protection attorney immediately is the best alternative. It’s critical to have someone who can assist you in developing a strategy that is tailored to your specific requirements. After all, everyone’s asset protection situation is unique, and the most important thing is to figure out what works best for you.
