When it comes to financial planning, one must consider opting for a self-settled asset protection trust. With a self-settled asset protection trust, one can protect their assets from creditors. However, by making an SSAPT, a person can still leverage a certain level of interest and benefit from the trust and its assets. The first step to creating an SSAPT is speaking to a tax law firm Virginia Beach.
In this blog, we will look into all the essential aspects of Self-Settled Asset Protection Trust.
How Self-Settled Asset Protection Trust goes with the estate plan?
People in professions like accountancy, law, or medical care, are vulnerable to creditors’ claims. If you are someone with high worth and exposed to creditors, lawsuits, or third-party claims, you should consider getting a Self-Settled Asset Protection Trust.
Although an SSAPT will cover you against creditors’ claims, you will have to meet specific requirements to be able to have one. However, one must keep in mind that an SSAPT doesn’t provide protection from all risks. Moreover, the requirements for having an SSAPT can make it a complicated process.
Another important thing one must be aware of is that the self-settled asset protection trust should be irrevocable. Besides this, the SSAPT should be created under specific laws and regulations. The creator of the SSAPT is called a grantor or settlor. The settlor of the trust can transfer the assets to the SSAPT, leverage some benefits or interest from the assets in the trust, eliminate creditors’ claim on the assets.
According to some IRS Lawyer Virginia Beach, people often dismiss the option of creating a self-settled asset protection trust simply because it is irrevocable. But they fail to look at all the good sides of an SSAPT.
A person can create an SSAPT in Virginia under Sections 64.2-745.1 and 745.2 of the Code of Virginia. The legislative provisions are extensive and detailed, but they allow the trustee to preserve assets during difficult circumstances. These ordinances are new, and the criteria have not yet been appropriately tested in Virginia tribunals. Still, they are built on model legislation that has been utilized in other states in different forms.
The best time to put up a self-settled asset protection trust is before the properties are at risk of being attacked. Thus, the Self-settled asset protection trust can only be effective if created before there is any creditor claim. If the SSAPT is created when there are outstanding creditor claims, it can be subject to dispute. Besides this, the settlor will remain solvent even after the transfer of the specific assets to the SSAPT.
If these two conditions are not satisfied, the settlor may be accused of attempting to evade valid claims by transferring assets fraudulently.
Finally, an SSAPT can be formed as a “grantor trust” for taxation purposes, similar to other irrevocable trusts, to avoid paying taxes at the trust level and offer a tax-free advantage to the trust heirs.