Trusts can be used for so many different things including estate planning, tax benefits, income in the case of disability or illness, passing on a family business, and asset protection.  If you own a business, it’s time to consider the possible advantages a trust can provide. Definitions The Settlor – the person who puts the assets in the trust.  This person also usually writes up the rules for how those assets should be distributed and to whom in a Deed of Trust. The Trustee – usually a financial institution of some sort but it can be a designated person or even the settlor.  The trustee’s job is to protect, invest, and distribute assets in accordance with the terms outlined in the Deed of Trust and in the best interests of the beneficiaries. The Beneficiaries – the people or organizations designated to receive the assets or cash distributions from the trust.  These are usually the heirs of the settlor but they can be almost anyone, and in some cases, they can even be the settlor themself. What is a Trust? A trust is a fiduciary agreement where a person or persons (the settlor/s) place their assets in the hands of a trustee for future use by the people or organizations they name as beneficiaries. It’s a way to pass on your wealth on to generations as well as a way to control how that wealth is distributed.  You can also use a trust to protect your assets from creditors in future lawsuits as well as gain tax benefits in terms of your real estate investments.  There are many different types of trusts and they all have their own advantages and disadvantages. Common Types of Trusts Revocable Trusts A revocable trust, also called a living trust, is the most popular form of trust.  It’s often used for estate planning purposes as the assets placed in a revocable trust are transferred to the beneficiaries upon the passing of the settlor.  However, while still alive, the settlor retains the ability to control the assets and can even change or cancel the trust at any time.  This is why it’s called ‘revocable’ or ‘living,’ because everything from the assets to the beneficiaries can be changed or revoked. Irrevocable Trusts An irrevocable trust differs from a revocable trust in that it cannot be changed once it is in place.  This means that the people or organizations listed as beneficiaries will stay beneficiaries and the assets placed in the trust cannot be changed nor controlled by the settlor. There are a few exceptions to these rules, but in general, once the trust is finalized, it cannot be altered. Obviously, a revocable trust sounds more appealing due to the ability to continue controlling your assets, but an irrevocable trust offers one major advantage: asset protection.  Because the settlor gives up ownership over their assets, creditors generally cannot reach those assets because the settlor themself cannot access those assets.  This is a strong way to protect your property from future lawsuits against you or your business.  Discretionary Trusts A discretionary trust also provides asset protection benefits because the beneficiaries have no property rights with regard to the assets held within the trust.  This makes it difficult for creditors of the beneficiaries to pursue those assets.  The downside of this is that the trustee has discretion over the identity of the beneficiaries and the timing and amount of distribution of the assets.  In a discretionary trust, the settlor essentially hands over their assets to the trustee and trusts them to make the right decisions. Offshore Trusts Offshore trusts are usually irrevocable so as to further protect your assets from U.S. legal interference.  However, they can also be self-settled — meaning that you are both the settlor and the beneficiary.  Offshore jurisdictions add a layer of protection over an individual or business’s assets because your property is no longer tied to U.S. soil or the U.S. court system.  This means a judge in the U.S. cannot compel a foreign trustee to release your assets in the case of a lawsuit.  If a plaintiff wants to come after your assets in an offshore trust, they’ll have to litigate in that country.   Choosing the right type of trust is key in your asset protection strategy.  If you’re looking to avoid the possibility of your assets being seized in a lawsuit, you ought to hire a professional asset protection lawyer to advise you on the best path forward for your business.   When done correctly, your trust can protect you, your beneficiaries, and your assets in future legal battles.  However, trusts can be extremely complex, especially offshore trusts, so you’ll want to hire an experienced attorney to help guide you through the process. 

If you’re planning to start a business, or you already own one, you’re probably wondering how to avoid future lawsuits.  If you’re not wondering that, well you should be.  Statistics show that 90% of all businesses are engaged in litigation at any given time.  To avoid major lawsuits and reduce the losses you may face, you’ll need to implement a sound asset protection strategy. There are different paths you can take to protect your assets and those strategies will vary depending on your specific needs and objectives.  For example, real estate assets are typically protected through a combination of LLCs and corporations to mitigate risk, while personal assets may be placed in a trust or shielded by liability insurance.  Usually, you’ll have to employ multiple asset protection strategies to achieve the ultimate level of impenetrability — although no strategy is a 100% guarantee.  Choose the Right Business Entity The first step toward asset protection is to choose the right business entity.  Some business entities provide more protection than others.  For example, you’ll want to avoid sole proprietorships and general partnerships as these do not provide adequate separation between your personal assets and your business.  This essentially means that should a creditor pursue a claim against your company, they can come after your personal assets to pay for damages.  To protect yourself against this, you’ll want to incorporate your business.  There are a variety of ways to incorporate your business.  You can become an S-Corporation, a C-Corporation, or even a nonprofit corporation.  Each of these types of business entities has its own distinct advantages (and disadvantages) so you’ll want to be careful about which you choose.  An experienced business attorney can help you determine which entity is best for your business goals.  Use Proper Contracts and Agreements When running a business, it’s easy to become overly-familiar with your clients and other companies you conduct business with.  While it’s great to build those connections, you want to be sure that you’re also using legal contracts and agreements for your business.  Instead of just sending an email or a text to confirm a lease, for example, you should have a formal lease agreement drawn up to protect you from liability if things do go wrong.  Always get it in writing.  All different types of business contracts from partnership agreements to employee contracts must have careful wording to ensure you’re adequately protected.  This is why it’s a good idea to hire a business attorney that can help you craft an effective contract as well as fight on your behalf should something be contested.  If you rely on any informal agreements to conduct your business, a savvy litigator may be able to use them as evidence to blur the line between personal and business activities, leaving your assets open to more risk. Move Your Assets to a Trust You can also protect your assets by putting your personal assets in a trust. A trust is an agreement where you place your assets in the hands of a trustee for future use by beneficiaries.  The benefit of placing your assets in a trust is that you technically no longer have ownership of them, the trust does.   However, there are different types of trusts and some are more protective than others.  A revocable trust or living trust allows you to still control your assets, but that means you (and the courts) can access them in the case of a lawsuit.  An irrevocable trust, on the other hand, requires you to give up total control over your assets so they are protected from creditors and debtors.  But the downside is your trust will need to be handled according to your original wishes, meaning you can’t make changes or control your assets any longer. You can also set up a trust for your business, not just one for your personal assets.  In cases like this, your business will be owned by the trust, not you, and therefore your company will be protected from creditors and lawsuits.  There is a catch though: you’ll have to have someone set up an irrevocable trust for you during their lifetime in order to start your business with this airtight protection.  If you already have a business, you can transfer your business into a creditor-shielded asset protection trust, but there are many restrictions.  Your protections will vary by state, but this will provide a way to protect your business assets from creditors and significant estate taxes.  This is especially the case if you use an offshore asset protection strategy.  Get Limited Liability Insurance Another key part of your asset protection strategy will be having strong liability insurance.  The insurance you purchase should cover the types of risks that your business faces — such as car insurance for a trucking company or malpractice insurance for a medical professional.  Insurance likely won’t cover you in every situation, but it can be a big help. You can also get an umbrella insurance policy for your personal assets to cover any gaps in your homeowners or auto insurance policies.  This should help protect your assets from seizure and provides additional liability protection if you are named in a lawsuit.  Instead of being forced to turn over your personal assets if you are held responsible for damages of some sort, personal umbrella insurance will cover the costs up to the amount you purchase and protect your assets. Speak with an Asset Protection Lawyer While it is possible to protect your assets after a lawsuit has been filed, the best option is to protect your assets beforehand.  If you wait until you’re in the middle of a lawsuit, you could face legal obstacles to blocking third parties from accessing your assets.  That’s why the best time for asset protection is NOW.  Discuss your options with an experienced asset protection attorney who can guide you through what’s available to you and help you narrow down the best strategy for your business.   Our team at Bagla Law Firm has years of…