Asset Protection Trust

An asset protection trust is the generic term for any trust arrangement intended to shield assets from unwanted claims. Use of a trust for asset protection is a tactic that dates back to the very inception of the trust, before there was any codified law or case precedent relating to how a trust arrangement is viewed by the courts.

The early prototypical use of trusts dates back to the days of the crusades, when knights would place legal ownership of their estates with their friends and trusted companions “trustees“. The necessity for legal codification issue arose where the knight would unexpectedly return from the campaign and the trustee had mismanaged the asset. Court would then be asked to rule upon the disputes therefore arising. Based upon the rulings of the chancellor, (whose role later became that of the courts of equity), the law relating to trust arrangements became standardised.
Therefore the very first use of the trust was indeed for the protection of assets, specifically the estates of the knights of the realm; the asset or estate in this case was simply placed into the trusteeship of a friend to keep it safe from any eventuality or challenge. The trust in its modern day usage continues to function as an effective asset protection arrangement.

The scope of asset protection afforded by a modern day trust arrangement is wide; it works to severe the connection between the grantor (creator) of the trust, and the asset. As most trusts are irrevocable, from moment of placing the asset into trust no legal claim made against the original grantor can attach to any of the assets previously owned by him. This rule applies equally to claims made by estranged business partners, spouses, or revenue collection officers.

Where the trust is correctly constituted, there is simply no basis at law in which a claim can be made against any property formally owned by the grantor.
To utilise an asset protection trust in the management of your financial and legal affairs, consider a number of aspects:

• The purpose that the trust will serve after its creation, or to put it another way;
• Who will the trust serve and who will benefit from the assets;
• The value of the assets to be placed into trust;
• The initial and annual on-going costs of maintaining the trust;
• Who are to be the trustees;
• Who will constitute the trust and or draft the trust deed;
• Your relationship to the beneficiaries.

Of paramount importance also is the consideration of how the trust is able to operate to fulfil the original aims, ambitions and intentions of the grantor. While it is the case that effective control of the assets has to be exercised by the trustees, the trustees must also honour the terms of the original trust deed to fulfil the initial will and intentions of the grantor.

With a skilfully constructed trust, the aims of the grantor will be effectively expressed, and a wide range of beneficiaries can continue to be the recipient of the material wealth of the asset. Not least, the existence of a pool of assets available for investment purposes can also create opportunity for the grantor as well as the beneficiaries.