An asset protection trust is a legal term that is used to describe a wide range of different structures that can be established within the legal system. These trusts are normally created as a way for people to avoid having to touch that money in the event of taxation, bankruptcy or even a divorce from their spouse. Based on the nature of these accounts, there are a lot of different limitations and boundaries that are legally placed on them.

Common law was the originating place for these accounts many years ago. They were originally designed to minimize the impact that a person would face from inheritance taxes in the event that that a deceased loved one had willed for them to be transferred a lump sum of money after their passing. The settings of these accounts were to separate the responsibilities that the beneficiary legally possessed as a trustee from the overall ownership of the equitable title of that account.

Over time, many people started to drift away from the original goal of these accounts. They shifted their focus towards manipulating the system to work in their favor. In most cases, this required them to find different loopholes in the law or even just bend the rules slightly.

Governments required courts to establish legal stipulations and restrictions that would identify any spendthrift scenarios. These approved amendments and laws would allow them to punish and penalize offenders of those rules accordingly. Different clauses were then enacted for proper prevention and protection of those accounts.

Even though it may seem as if beneficiaries are restricting themselves from their own money by placing it within these funds, they are actually protecting themselves as well as their finances. These accounts allow the beneficiaries to give up their legal title of ownership over that money. This comes in handy when it comes to creditors because they would only be able to have access to the interest of that account when trying to satisfy a judgment instead of the entire account overall.

In order for the account to be protected fully, it needs to be set up as being irrevocable. If it was revocable, on the other hand, then the account would not be able to provide any sort of protection for the beneficiary. There is also a spendthrift clause included in the majority of these accounts in order to prevent a beneficiary for estranging their own interest in favor of a separate creditor.

Several countries have strict tax regulations against these accounts, especially when their owners try to establish them in offshore locations. Many of these trusts require their owners to disclose any activity and balance of these accounts on their annual tax returns. Refusing or failing to do so can result in imprisonment and hefty fines.

Establishing an asset protection trust has its advantages and may seem to be very beneficial. It is crucial, however, to keep in mind that there are many important laws that need to be followed in order to continue protecting those accounts. Bending or breaking the law may seem to be more advantageous in certain situation, but having to face the consequences of those actions is truly inevitable.

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