Asset protection trusts (sometimes shortened to APTs) are financial and legal instruments that can be used to place certain assets out of the reach of outside parties, including creditors. These types of trusts need to be carefully formed, as they often cannot be altered or revoked once they have been funded.
The person creating the trust (the “grantor” or, sometimes, “settler”) also cannot be directly named as a beneficiary, in many cases. They must be willing to have the proceeds from the trust go to another individual, in most cases — or, with careful planning, have proceeds from income, equity, or capital gains transferred to them through complicated legal means.
Because of their complex legal nature, New Mexico asset protection trusts can provide significant financial advantages. Professionals with high exposure to liability, such as doctors or business owners, can use an APT to reduce the likelihood that the assets earned through their livelihood will be seized by a civil judgment, for example.
Individuals who will likely need to use Medicaid to cover the costs of long-term care may wish to create a Medicaid Asset Protection Trust to avoid having their assets claimed by the state in which they reside.
Creating an asset protection trust in New Mexico is a crucial part of estate planning for certain individuals, especially those with significant assets, income, or wealth. It can also be an exciting opportunity for you and your family to ensure the longevity of your financial legacy.
You can get started and learn answers to your specific questions during a consultation with a New Mexico asset protection trust lawyer when you call New Mexico Financial & Family Law at 505-503-1637 or contact us online.
Asset protection trusts are just one of many legal instruments that can be used to protect finances from certain risks. Before deciding on the right strategy for you, it’s critical to clearly define your goals and weigh all of your options in light of those goals.
Below, we have listed some of the primary reasons individuals come to us in order to form a trust that can protect their assets. We would recommend that you consider an asset protection trust as one of your available options if you face risks from possible asset recovery actions taken by:
However, we would caution against forming an asset protection trust if you are trying to avoid asset recovery by:
Critically, an APT must be formed prior to the onset of any sort of legitimate claim against the assets held in trust. The creator of the trust must also seek to act in good faith when receiving credit or conducting their professional and financial operations, as the use of a trust to intentionally avoid a negative outcome can invalidate the protections offered by said trust.
Ideally, a trust should be formed 3 – 5 years prior to any sort of possible claim against the assets, depending on the type of claim. For this reason, it is critical to begin planning your APT as early as possible.
There are many different arrangements that can be made when placing assets into a trust capable of protecting itself from certain outside claims. Some of the most notable to consider include a:
As the name implies, these types of APTs are formed in the United States, meaning that state and federal laws control them and that the assets are technically held on U.S. soil.
Crucially, only 20 states allow for the formation of a DAPT: Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
You may notice that New Mexico is not on this list of states. However, you are permitted to form a trust within a particular state, according to that state’s laws, provided you abide by certain terms.
These terms often include the expectation that a business or investment operation regularly depositing money into the trust for a certain state will conduct a significant degree of activities or hold other significant interests within that same state’s boundaries. Otherwise, laws applying to the state where operations primarily take place may override the laws of the DAPT-granting state.
DAPT trusts also do not grant the same degree of protection from creditors and judgments that an offshore trust might. For instance, they may be accessed as a result of certain liens or judgments, especially in connection to a U.S. Bankruptcy case. At the same time, they are easier to create, less costly to maintain, and more easy to supervise and direct compared to an OAPT.
Further, forming a DAPT in certain states may allow the grantor to reduce or exempt their state taxes for specific types of income. Refer to a New Mexico asset protection trust attorney to know if this possible benefit may be available for your specific situation.
It is possible to form a trust under the laws and regulations of a foreign country, allowing ownership of assets to be transferred outside of U.S. borders. Forming a trust in a country with extensive privacy laws for business interests can mean that it is difficult or impossible for those seeking to recover assets to know the contents of said trust.
In other words, not only is it more difficult for a creditor or judgment recipient to pursue assets in an offshore trust, but it also may be impossible for them to even know for sure what assets exist and what their full value might be.
As implied above, the protections afforded to offshore asset protection trusts may not apply if enough pressure is placed upon the trust-forming country by an agency with significant authority. Such trusts should never be used to shield assets from the IRS or to otherwise hold onto profits that are the result of activities that violate U.S. laws and regulations.
Further, if the claim against the assets predates the formation of the trust — or the claim stems from activities planned or conducted prior to its formation — the assets are likely to be made available to the claimant by the trustee.
While most people are entitled to a certain amount of Medicare coverage, Medicaid programs are available only to U.S. residents who meet strict income and asset requirements. Some of the most important of these programs provide long term services and supports.
While Medicare may only pay for a limited hospital and rehabilitation stay, Medicaid long term care programs can pay for multiple months — or even years — of personal care. This care may be rendered in a facility, such as a nursing home, or through the use of in-home support.
Medicaid long-term care coverage can offer enhanced quality of life to individuals with extensive medical needs but limited financial means. However, individuals who qualify for these coverage programs may be subject to Medicaid estate recovery.
What this means is that New Mexico — or the state in which you reside and receive care — can place a lien on your home and, possibly, other assets after you are no longer living.
Put simply: after you have passed on, Medicaid estate recovery programs will take steps to recover the costs of the care they have paid for. Often, this recovery can affect a prized asset, including a beloved family home held for multiple generations.
To determine what assets are eligible for recovery, state Medicaid offices typically look back over a period of five years prior to the first application for services. If, during that time, the care recipient transferred property or other assets, that transfer may be reversed, allowing the state to recover them, along with possible penalties incurred if the intention was to avoid estate recovery.
The risk of estate recovery puts a lot of pressure on families with limited financial means who are facing serious decisions about their loved one’s care. There are certain ways to reduce exposure of assets and income to estate recovery, but one of the best is to form a Medicaid asset protection trust (MAPT) at least five years prior to the earliest predicted need for long-term care.
Placing assets in a MAPT can allow for those assets to still be owned by or distributed to beneficiaries. The trust can also include a provision allowing the grantor to live in a home transferred into the trust until their passing.
Clearly, there are many advantages to forming a MAPT, but the key caveat is that they must be planned early, before the onset of any serious financial troubles or medical needs. If you or a close family member has assets like a home but limited income and the potential need for long-term medical support, consider forming a MAPT as early as you can.
While there are many differences between the types of asset protection trusts, they all follow a similar legal structure:
Another key defining trait is that all types of asset protection trusts must be irrevocable, meaning that once ownership of assets is transferred out of the hands of the grantor, they have no legal claim to those assets — nor can they change the terms of the trust.
Asset protection trusts should also be created as a spendthrift trust. What this means is that the beneficiaries of the trust are highly limited in their ability to sell, consume, or transfer assets held in trust except under specific circumstances.
One strategy that can be used to exercise some degree of control and direct oversight over the contents of a trust is to form a limited liability company or LLC. LLCs can own and operate certain assets held in trust as their own separate legal entity despite being owned by the trust.
Under this arrangement, the assets of a business can be protected from certain recovery actions while still allowing the original owners to operate the business and draw income from it. LLC arrangements can also be used to make regular transfers of income or assets without invalidating the terms of the trust.
You can even use an LLC to shift the value of real property, such as by obtaining a second mortgage on a property and then transferring the value of the loan entirely into the trust.
LLC arrangements for both domestic and offshore asset protection trusts can provide many benefits, but they can also get complicated and cumbersome to manage. Be sure to refer to an experienced estate planning attorney to ensure you are able to meet your goals while reducing your exposure to risks that can come from transferring property out of your own name.
Yes, the creator of the trust may be able to name themself as a beneficiary under certain circumstances. Typically, they will draw proceeds or other forms of income from the trust at regular intervals.
They may also receive transfers from the trust under specific circumstances, such as after the sale of a company held in trust.
At the same time, no beneficiary may exercise significant control over the trust once it is formed, since it is both irrevocable and subject to a spendthrift clause. Any intended transfers, therefore, should be set up in advance with clear language to avoid any unintended risk or consequences.
New Mexico Financial & Family Law understands the deep level of consideration that goes into estate planning and all of the hard decisions that have to be made. The topic of transferring your hard-earned assets into a trust can be difficult to fully consider, especially when the laws that apply can quickly get complicated.
At the same time, asset protection trusts create tremendous opportunities for individuals, their loved ones, and all the smart investments and hard work they did over the course of their life. In many ways, creating a trust is like taking all of that hard work to the next level, so that you and your loved ones can live comfortably, without the fears that can come with having so much on the line.
If you are ready to take that next step and protect the things you worked so hard to achieve, our attorneys are here, ready to help. Get started with a consultation where you’ll learn more about your options and get answers to your most pressing questions when you call 505-503-1637 or contact us online today.
CallCall now to schedule your consultation 505.503.1637
Office