Asset Protection Trust - Calgary Trust Lawyer
Neufeld Legal P.C. can be reached by telephone at 403-400-4092 or email Chris@NeufeldLegal.com
An Asset Protection Trust is a legal arrangement designed to safeguard an individual's assets from potential future claims by creditors, lawsuits, or judgments. The core principle behind an Asset Protection Trust is to legally separate ownership of assets from the individual who created the trust, making those assets less accessible to outside parties.
The functionality of an Asset Protection Trust emanates from its structure, and how that structure intersects with the applicable law, with the core legal aspects being:
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The Settlor (Grantor): This is the individual who creates the trust and transfers their assets into it.
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The Trustee: This is an independent third party (which can be an individual or a professional trustee like a bank or trust company) who takes legal ownership and manages the assets within the trust. The trustee has a fiduciary duty to manage the assets in the best interest of the beneficiaries.
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The Beneficiaries: These are the individuals who will ultimately benefit from the assets held in the trust. The settlor can often be a beneficiary of their own asset protection trust, though their access to the funds is typically at the discretion of the trustee.
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The Transfer of Assets: The settlor legally transfers ownership of specific assets (like cash, securities, real estate, business interests, etc.) from their personal name into the name of the trust. Once transferred, these assets are no longer considered part of the settlor's personal estate.
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Its Irrevocability: A crucial characteristic of most effective asset protection trusts is that they are irrevocable. This means that once the trust is established and assets are transferred, the settlor generally cannot change or revoke the terms of the trust, nor can they reclaim direct ownership of the assets without the consent of the trustee and/or beneficiaries. This loss of control is what provides the protective barrier.
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The Spendthrift Provision: Many Asset Protection Trusts include a "spendthrift clause," which prevents a beneficiary from voluntarily assigning their interest in the trust to a creditor, and also prevents creditors from attaching to the beneficiary's interest.
This in turn facilitates the potential realization of particular benefits from the institution of the Asset Protection Trust, including:
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Creditor Protection: The primary goal is to shield assets from future creditors, such as those arising from business ventures, professional malpractice claims, personal guarantees, or other unforeseen liabilities.
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Lawsuit Protection: By placing assets into a trust, they may be protected from judgments in lawsuits, making it more difficult for a plaintiff to seize them.
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Estate Planning: Asset Protection Trusts can also be integrated into broader estate plans to facilitate wealth transfer to heirs, potentially reducing estate taxes in certain jurisdictions, and addressing other matters pertaining to probate.
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Divorce Protection: In some jurisdictions and under specific circumstances (e.g., assets placed in the trust well in advance of a divorce), an Asset Protection Trust may help protect assets from forming part of the assets distributed in the divorce proceedings.
Nevertheless, even though it is possible to speak of prospective benefits with any legal structuring, such as an Asset Protection Trust, it is also important to recognize significant legal considerations and limitations, including:
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Timing is Key: An asset protection trust must be established before any potential claims or lawsuits arise. Attempting to transfer assets into a trust to defraud existing creditors is illegal and can lead to the trust being unwound (known as a "fraudulent conveyance").
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Loss of Control: Because the trust is typically irrevocable, the settlor gives up direct control over the assets placed in the trust. The trustee manages the assets according to the trust's terms.
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Complexity and Cost: Setting up an Asset Protection Trust is a sophisticated legal process that requires the expertise of an experienced estate planning lawyer. There are also ongoing administrative costs, including trustee fees and tax filings.
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Tax Implications: Trusts are separate legal entities and have their own tax rules. The tax treatment can vary depending on the type of trust and the jurisdiction.
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Jurisdiction: The effectiveness of an Asset Protection Trust can depend heavily on the laws of the jurisdiction where the trust is established (e.g., domestic asset protection trusts versus foreign/offshore asset protection trusts).
Asset protection trusts are a powerful, yet complex, legal tool for individuals seeking to proactively protect their wealth from future financial risks. They invariably require careful planning and professional guidance to ensure that they are legally sound and effectively meet their intended purpose and requirements of all pertinent laws .
Contact our law firm today to learn how our legal team can help you plan for the future or deal with the legal demands associated with the passing of a loved one. Contact our law firm at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
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Henson Trusts. A Henson Trust is a trust (most frequently forming part of a parent's or grandparent's Will) that provides the trustees with the absolute discretion to distribute income and capital from the trust to the beneficiary as they see fit. The trustees have full control as to when, if and how much income or capital is to be paid to the beneficiary. Read more. |
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Inter Vivos Trusts. An inter vivos trust (also known as a living trust) is a legal arrangement created and funded during the lifetime of the settlor (the person creating the trust). The term "inter vivos" comes from the Latin "between the living" and as such is distinguishable from a testamentary trust, which is established on the death of the settlor. Read more. |
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Testamentary Trusts. A testamentary trust is a trust that is created by a person's will and comes into effect only upon their death. It is an alternative to distributing all assets directly to beneficiaries. Instead, assets are transferred to the trust, which is then managed by a trustee for the benefit of the designated beneficiaries. Read more. |
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Irrevocable Trusts. An irrevocable trust is a legal arrangement where the creator of the trust (known as the grantor or settlor) permanently transfers assets into the trust, giving up all ownership and control over those assets. Once established, an irrevocable trust generally cannot be changed, amended, or revoked without the consent of all beneficiaries, and sometimes a court order. Read more. |
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Asset Protection Trusts. An Asset Protection Trust is a legal arrangement designed to safeguard an individual's assets from potential future claims by creditors, lawsuits, or judgments. The core principle behind an asset protection trust is to legally separate ownership of assets from the individual who created the trust, making those assets less accessible to outside parties. Read more. |
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