Throughout the course of your life, you work hard to put away savings, make smart investments, and build up whatever wealth you can. There are many possible risks that could jeopardize your nest egg, but perhaps none are as significant as lawsuits and creditor claims.
With an asset protection trust, you may be able to shield these hard-earned resources from future claims. A Las Cruces asset protection trust lawyer can show you how. These trusts can take many forms. The key is to understand your needs and analyze the best options available in light of your goals.
When you come to New Mexico Financial & Estate Planning Attorneys, we can offer the full extent of our knowledge, experience, and resources to give you all the insights you’ll need. You can then form an asset protection trust in Las Cruces with our assistance.
Find out more when you call (505) 503-1637 or contact us online to schedule a confidential appointment with no further obligation. You’ll learn what you need to get started and guard the legacy you worked so hard to create.
An asset protection trust makes the most sense for individuals who work in high-risk professions or those who have complex financial obligations. They may also be used when a beneficiary is at a high risk of a creditor claim or legal judgment.
While these specialized trusts can’t protect assets from existing (or anticipated) claims, they can build a shield around certain assets in case of future risks.
Your asset protection trust should be custom-built to accommodate your unique needs, finances, and risk profile. You may decide to create it in a U.S. state that has favorable laws. Or, if your goal is to achieve as much distance as possible, you could opt for an offshore trust.
In some cases, you may be looking to create an asset protection trust to help you qualify for Medicaid, which means it can be formed right here in Las Cruces.
New Mexico Financial & Estate Planning Attorneys can fully explain the advantages, risks, and common use cases for each type of trust. We can then recommend a range of options, enabling you to select the one that offers the perfect mix of strengths and opportunities.
Some of the most common scenarios we help our clients prepare for using an asset protection trust include:
For households and families that form an asset protection trust, the advantages can be substantial. At the same time, they should exercise a high degree of due diligence. Because these trusts are irrevocable, they can be nearly impossible to alter once created. That is one major reason why the input of a Las Cruces trusts lawyer can be so important.
All asset protection trusts follow the same basic principles. They are created using a trust arrangement involving three main parties:
Importantly, all asset protection trusts are irrevocable. This quality means that they cannot be modified or dissolved, in most cases. Typically, the only way to alter them is through an arduous procedure involving unanimous consent of beneficiaries and, likely, a court order granting permission to the trustee.
The irrevocability of asset protection trusts is an important factor. It means that the grantor effectively waives all controlling ownership over the assets once it is created.
Some other characteristics that can strengthen the trust’s ability to shield assets include the following.
The grantor should not serve as a trustee, nor should anyone close to them, such as a spouse or adult child.
The trustee should also not be a beneficiary (although they can request payment for their services).
Without a demonstrable interest, trustees can remain neutral and less likely to make decisions that solely benefit the grantor. This reduces the risk that a creditor can demonstrate the grantor’s ability to access the trust’s contents.
Giving the trustee discretionary powers means that they choose when to make a distribution, according to their best judgment and the terms of the trust.
If there are guaranteed distributions, then a creditor can simply wait until the grantor (or any other party) receives one. However, if the trustee is empowered to refuse a distribution for valid reasons, then a court may not be fully able to compel them to do so.
As part of the trustee’s discretionary powers, there should be no expectation that they would refuse a distribution solely or mainly because doing so would result in a creditor claiming the funds. This would be an “implied agreement,” and it could invalidate the protections offered by the trust.
In fact, the American College of Trust and Estate Counsel (ACTEC) recommends the use of a corporate trustee, such as a financial institution or professional trust management company, rather than an individual. This reduces the risk that the grantor would know the trustee personally, further reducing the possibility of an implied agreement.
A spendthrift clause prevents beneficiaries from claiming an early interest in the trust’s distributions. In other words, all property held in the trust is solely the trust’s property until it is distributed.
This arrangement prevents a beneficiary from trading their interest as collateral for a loan or as repayment for a pre-existing debt. It can also prevent a court from issuing an order compelling a trustee to make a distribution to repay a debt.
A grantor should not have a “power of appointment,” meaning they lose access to the principal contents of the trust. Ideally, a grantor would also not be a beneficiary of the trust at all.
That last provision can be one of the hardest to follow, but it is generally recommended for stronger asset protections. In fact, it is a requirement for certain trusts, such as a Medicaid asset protection trust.
Simply put, the more limited the grantor’s access, the less likely it is that a judgment could be made expecting them to take a distribution or otherwise obtain assets from the trust.
There may be other methods that can be used to optimize the ability of a trust to protect its assets. These can be customized to fit the asset portfolio, risk profile, and personal goals of the grantor.
Refer to a Las Cruces asset protection trust lawyer for personalized guidance.
There are three main types of asset protection trusts:
A domestic asset protection trust offers the security of U.S. laws and legal systems while still shielding assets from new claims.
In many cases, these protections can be offered because of a compressed statute of limitations, meaning that a creditor with a new claim has no right to pursue the assets after the period has expired.
Some states, like Nevada, won’t even require the grantor to access the funds in case of judgments ordering child or spousal support.
These states tend not to have state income taxes, so the trust would only pay federal taxes at the trust tax rate. They also may not require an affidavit attesting to the grantor’s solvency for each new transfer of trust property.
Refer to an asset protection trust attorney in Las Cruces for more information on forming a trust in a state that can offer maximum protections.
These trusts are formed in a foreign jurisdiction, such as the Cayman Islands, Cook Islands, Belize, or the Bahamas.
Many of these countries lack a treaty recognizing and enforcing foreign judgments. They may also deeply respect the secrecy of the trust’s grantor and trustee, to the point they might refuse to even disclose the existence of the trust, much less reveal its contents.
The tradeoff to these arrangements is risk: there’s no telling if the banks and financial partners facilitating the trust’s operation could unexpectedly go under. There is also the risk of a country-wide disaster, war, or financial collapse. In cases of fraud or theft, the same laws that protect the trust from foreign investigation could prevent you from following through on legal action against the culprit.
Anyone willing to balance these risks is likely to obtain the highest level of asset protection. With proper vetting, research, and a willingness to pay higher costs for operating the trust or facilitating transfers, these arrangements can benefit certain individuals with a high net worth.
Medicaid programs are designed to support individuals who cannot otherwise afford medical care. Long-Term Services and Supports (LTSS) benefits the applicant to have a very low net worth and limited income. These programs also give the state the right to recover assets from the care recipient after their death to repay for the cost of their care.
To ensure that recipients don’t give away assets prior to applying to the program, officials use a five-year “lookback” period. If any transfers were made during this period for less than fair market value, they may need to be reversed. The applicant may also be subject to a penalty waiting period before they can reapply.
Medicaid asset protection trusts are one of the only ways to reduce countable resources without triggering this penalty. Their rules vary by state, but the general guidelines to follow include:
There may be other rules and best practices that could apply. If you want to prepare for the possibility that you might need Medicaid coverage to pay for your care, speak to a Las Cruces estate planning attorney as soon as you can.
New Mexico Financial & Estate Planning Attorneys can help you prepare your estate to protect it from claims, judgments, and other financial risks. Whether you decide to form an asset protection trust or use other methods, the goal is always the same: preparing for a world you want to see. That might mean providing for your loved ones or avoiding a situation where all your hard work is jeopardized because of one court ruling.
Find out about the best methods available to protect you, your finances, and the ones you love. Call our offices at (505) 503-1637 or contact us online to schedule a no-obligation consultation and estate plan review today.
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